THE NATURE OF COST ACCOUNTING
Cost accounting, sometimes called management or managerial accounting, should be
considered the key managerial partner, furnishing management with the necessary
accounting tools to plan and control activities.
In the planning phase, cost accounting deals with the future. It helps management to
budget the future or predetermined materials costs, wages and salaries, and other costs of
manufacturing and marketing products. These costs might be used to assist in setting
prices and disclosing the profit that will result, considering competition and other
economic conditions. Cost information is also provided to aid management with
problems such as capital expenditure decisions, expansion of facilities for increased sales
or production, make-or-buy decisions, or purchase-or-lease decisions.
In the control phase, cost accounting deals with the present, comparing current results
with predetermined standards and budgets. Cost control, to be effective, depends upon
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
Periodically, generally at the end of the fiscal period, cost accounting deals with past
costs for the purpose of profit determination and thereby with the allocation of historical
costs to periods of time. At this point, cost accounting procedure is particularly concerned
with the application of manufacturing cost to units of products to be capitalized in the
ending inventory and transferred to cost of goods sold as shipments are made.
More specifically, cost accounting is charged with the tasks of:
1. Establishing costing methods and procedures that permit control and, if possible,
reduction or improvement of costs.
2. Aiding and participating in the creation and execution of plans and budgets.
3."Creating inventory values for costing and pricing as described by law and, at times,
controlling physical quantities.
4. Determining company costs and profit for .an annual or shorter accounting period, in
total or by segment, as determined by management or required by governmental
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 costs for a new product,
discontinue a product line, buy or lease equipment, or take other actions to increase
profits or solve problems.