THE NATURE OF COST ACCOUNTING

In the planning phase cost accounting deals with the future. It helps management the budget the future of predetermined materials cost wages and salaries and the other cost of manufacturing and marketing products. These cost might be used to assist in setting price and disclosing the profit that will the result considering competition and other economics conditions. Cost information is also provide to add management with the problem such as capital expenditure decision expansion facilities for increased sales or production nake-or-buy decision or purchase-or-less decision.

In the control phase cost accounting deals with the present accounting current results with predetermined standards and budget cost control to be effective depends up on proper cost planning for each activity function and condition. Via the cost accounting media management is informed frequently of those operating functions that fail to contribute their share to the total profit or that perform inefficiently thereby leading to profit erosion.

Periodically generally and the end of the fiscal period cost accounting deal with the past cost of the purpose of the profit determination and thereby with the allocation of historical cost to period of time. At this point cost accounting procedure is particularly concerned with the application manufacturing cost to units of product to be capitalized in the ending inventory and transferred to cost of goods sold as shipments are made.

More especially cost accounting is charged with the task of :

  1. Establishing cost methods and procedure that permit the control and if possible reduction or improvement of costs.

  2. Aiding participating in the creation and execution of the plans and budgets.

  3. Creating inventory values for costing and pricing and described by law and at times controlling physical quantities.

  4. Determine company cost and profit for an annual or shorter accounting period in total or by segment as determined by management or required by government regulations.

  5. Providing management with cost information in connection with problems that involve a choice from among two or more alternative courses that is decision making. The decision may be to enter a new market develop the cost for a new product discontinue a product line buy or lease equipment or take other action to increase profits to solve problems