Traditional Function:

In traditional accounting, the main aim is to analyze, summarize, and

record expenses and companies were not seeking expense
behavior, cost drivers, and fluctuations.

Modern Function:

In modern accounting, the aim is to record, summarize, and analyze

expenses and analyze the expense behavior, cost drivers, and
fluctuations
Accuracy:
The data to be used by the Cost Accounting System should be accurate; otherwise,
it may distort the output of the system.
Simplicity:
Cost Accounting System should be tailor-made, practical, simple and capable of
meeting the requirements of a business concern.
Elasticity:
The Cost accounting system should be flexible enough to make necessary
amendments and modifications in the system to incorporate changes in
technological, reporting, regulatory & other requirements.
Economy:
The Costing System must be economical to the organization and the benefits
derived from the system should be more than its cost of installation and operation.
Comparability:
The Costing System must take care of the importance of comparability of
data, with previous period’s data, with competitors’ data, with industry
averages.
Promptness:
An ideal costing system is one that provides cost data as and when required
by the Management in timely manner and in an analytical form to the
management.
Periodical preparation of accounts:
The Costing System should ensure proper accounting for materials, labor
and overheads and proper classification of transactions. It should be capable
of producing sheets & cost statements periodically.
Reconciliation:
The system of cost accounts must be capable of reconciling with financial
accounts to check the accuracy of both the system of accounts.
Uniformity:
The various forms and documents used under the costing system must be
uniform in size and quality of the paper. Printed forms must be used to
avoid delays in the preparation of reports.
This also reduces the burden of clerical staff. Forms of different colors can
be used to distinguish different documents.

Equity:
The cost ascertainment, allocation, distribution, assigning task on the
basis of right person for the right job can be efficiently made under
efficient costing system.
1.Recording cost data:
At the first step of cost accounting, it ascertains and records the element of
cost for determining of cost of production.

2.Classification of cost:
At the second step, according to function, nature, and behavior cost
accounting classifies the cost.

3.Determining total cost

In this step under cost accounting cost of goods sold of a product is
calculated.
The cost of goods sold means the sum of all items of expenditure incurred
in production for the goods which are sold.
4.Unit cost
In the fourth step, the Unit cost is obtained dividing the cost of goods
sold divided by the total number of units sold.

5.Selling price
Selling price is obtained by adding a profit margin with the cost of
sales.

6.Cost control and decision making

At the last step of cost accounting by using standard costing and budget
and budgetary control system cost accounting control cost and make a
decision.
The Cost Center is a department or a distinct unit or division
within the framework of a company. ... Cost center requires
money to operate, and most of them function within their pre-
decided budget. The managers and other personnel in these
departments are responsible for keeping their costs within the
budget.
Personal Cost Center
Such a cost center deals with a particular person or a group of
persons. Examples include sales manager, recruitment manager, etc.

Impersonal Cost Center

Such cost centers deal with equipment, machinery, or even locations.
An example of such a center is the research and development
department.

Production Cost Center

Cost centers directly related to the production department or assist in
the production activities come under this category.

Service Cost Center

Such cost centers provide services to the production center. A few of
such cost centers are the procurement department, quality control
department, and logistics department.
Moreover, they can also provide service to other service cost
centers too. For example, the maintenance department offers
services to the entire company- both production and service cost
centers.

Operation Cost Center

Such cost centers are concerned with people or machines engaged
in similar activities.

Process Cost Center

Such cost centers are concerned with a specific process or event.
 Costing Techniques

1. Uniform Costing
2. Historical Costing
3. Standard Costing
4. Marginal Costing
5. Direct Costing
6. Absorption Costing
1. Uniform Costing
Uniform costing is defined as “the use of the same costing principles and/or practices by
several undertakings.”
Thus, when a number of undertakings, whether under the same management or otherwise,
decide to adhere to one set of accepted costing principles (particularly in matters where there
can be two opinions), they are said to be following uniform costing.
Uniform costing seeks to establish uniform method of costing which enables the performance
comparison of different undertakings easily and effectively, leading to the common advantage
of all participating undertakings.

2. Historical Costing/Conventional Costing/ Actual costing

Ascertaining and recording costs after they have been incurred is known as historical costing.
It provides the management with a record of what has happened and, therefore, is a
postmortem of the actual costs.

Since this approach is conventional, it is known as conventional costing or actual costing. 

Actual costs can be ascertained in two ways:
Post costing & concurrent or continuous costing.
• Post Costing
Under this system, costs are ascertained after production is completed. This is achieved by
analyzing financial data in such a way as to disclose the cost of the units that have been
produced.
• Concurrent/Continuous Costing
Under this system, costs are ascertained by recording expenditures and allocating these to
production as and when they are incurred. The result is that costs are ascertained as soon the
job is completed or even when the job is in progress.

3. Standard Costing
Under standard costing, costs are calculated in advance based on normal or probable
expectations. These costs are known as standards or standard costs. They are compared to
actual costs when incurred to ascertain the variances or differences.
These variances or differences are analyzed in terms of their causes later on. As a result,
management can take corrective action when necessary.
4. Marginal Costing/ differentiating costing
Under marginal costing, costs are classified as fixed or variable. Fixed costs tend to
remain fixed or constant with changes in the volume of output, whereas variable costs
 typically vary in a directly proportional way based on changes in the volume of output.
The main objective of marginal costing is to deal with the effects of changes in the volume
or range of output on the costs or profit of a business concern.

5. Direct Costing
The practice of charging of all direct costs to operations, processes, or products, leaving
all indirect costs to be written off against profits in the period in which they arise.

6. Absorption Costing/ Full Costing

The absorption costing may be defined as “The practice of charging all costs, both
variable and fixed, to operations, processes or products.”
Under absorption costing, no distinction is made between fixed costs and variable costs.
Furthermore, all costs, whether fixed or variable, are considered to determine the cost of
production. Absorption costing is also known as full costing.
1. Job order costing is a cost accounting system that accumulates manufacturing costs
separately for each job. It is appropriate for firms that are engaged in production of
unique products and special orders. For example, it is the costing accounting system most
appropriate for an event management company, a niche furniture producer, a producer of
very high cost air surveillance system, etc.

2. Batch Costing:
This is an extension of job costing. A batch may represent a number of small orders passed
through the factory in batch. Each hatch is treated as a unit of cost and separately costed. The
cost per unit is determined by dividing the cost of the batch by the number of units produced
in a batch. This method is mainly applied in biscuits manufacture, garments manufacture and
spare parts and components manufacture.

3. Contract Costing:
When the job is big and spread over long periods of time, the method of contract costing is
used. A separate account is kept for each individual contract. This method is used by builders,
civil engineering contractors, constructional and mechanical engineering firms etc.
4. Cost-plus Costing
This is an aspect of contract costing. Cost-plus costing occurs when, for a contract, both the
contract price and an extra agreed sum are paid to the contractor.

5. Single Costing/output Costing

Single costing is also known as unit costing or output costing. Under single costing, the
cost per unit of output or production is ascertained. Each element constituting such a cost is
determined separately.
This costing method is suitable in industries such as brick-making, paper mills, and flour
mills.

6. Process costing 
It is a method that accumulates manufacturing costs separately for each process. It is
appropriate for products whose production is a process involving different departments and
costs flow from one department to another. For example, it is the cost accounting system
used by oil refineries, chemical producers, etc.
7. Operating Costing/Service Costing
The term service costing or operating costing refers to the computation of the total
operational cost incurred on each unit of the intangible product. These intangible products
or services can be either in the form of internal services that are carried out by industries as
supporting activities for the manufacturing of goods. Or in the way of external services that
are offered as a significant product to the customers by the service sector companies such
as those rendered by bus companies, transport agencies, and electricity companies.

8. Multiple Costing/ Composite costing

In this costing method, the costs of different sections of production are combined after
ascertaining the cost of each and every part manufactured.
In the automotive industry, as well as other industries in which products are comprised of
many assembled parts, multiple costing is frequently applied.
On the basis of Decision making

• Sunk Cost

• Out of pocket cost

• opportunity Cost

• Imputed/implicit Cost