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Intro To Costing - 114119

The document provides an overview of cost accounting, defining key concepts such as cost, costing, and the differences between cost accounting, management accounting, and financial accounting. It outlines the objectives of cost accounting, the elements of cost, and various methods and techniques of costing. Additionally, it highlights the importance of cost information for management decision-making and the distinctions in focus and reporting between cost and management accounting.

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26 views3 pages

Intro To Costing - 114119

The document provides an overview of cost accounting, defining key concepts such as cost, costing, and the differences between cost accounting, management accounting, and financial accounting. It outlines the objectives of cost accounting, the elements of cost, and various methods and techniques of costing. Additionally, it highlights the importance of cost information for management decision-making and the distinctions in focus and reporting between cost and management accounting.

Uploaded by

celebeauty007
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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INTRODUCTION TO COST ACCOUNTING

Cost: Cost is the amount of expenditure incurred on or attributable to a specified thing or


activity.

Costing: Costing refers to the process of determining the cost of a product, service, or activity.

Cost Accounting: Cost accounting is a branch of accounting that deals with the analysis,
classification, and reporting of costs associated with the production of goods or services.

Management Accounting: Management accounting, also known as managerial accounting, is a


branch of accounting that focuses on providing financial and non-financial information to
managers within an organization to help them make informed decisions.

Financial Accounting: Financial accounting is a branch of accounting that focuses on the


preparation of financial statements for external stakeholders, such as investors, creditors, and
regulatory bodies.

The Objectives of Cost Accounting


The objectives of cost accounting include the following:
1. Determining the cost of production or provision of services.
2. Examining and interpreting cost data to identify trends, anomalies, and
areas for improvement.
3. Establishing cost standards and benchmarks.
4. Monitoring and reporting actual costs against these standards.
5. Providing relevant cost information to support management decisions,
such as: Pricing decisions, Product mix decisions, Make-or-buy decisions
and Investment decisions

Differences between Cost and Financial Accounting


S/NO BASIS COST ACCOUNTING FINANCIAL ACCOUNTING
1 Nature of costs/ Predetermined estimates, Historical and past costs/ /revenue
revenue. standards and budgets
2 Users of Management of a business Management as well as external
information enterprise stakeholders, such as shareholders,
creditors, tax authorities investors
…..
3 Objectives Provide information to aid Satisfy the stewardship function of
planning, decision making and management i.e. account for the
control use of resources entrusted to
management
4 Conformity to No need to comply with Absolute need to comply
concepts and standards and concepts meticulously with accounting
standards concepts and standards
5 Scope and form Determined by management Determined by concepts, standards
of presentation on the basis of relevance and and legal provision
cost benefits consideration
6 Precision of Approximations are permitted Information must be more precise.
information due to uncertainties in making There is usually an audit by
estimates, but must be independent external auditors to
sufficiently precise and confirm the reliability of
accurate. information.

S/NO BASIS COST ACCOUNTING MANAGEMENT ACCOUNTING


1 Focus Focuses on determining the Focuses on providing financial and
cost of production or provision
non-financial information to
of services managers for decision-making.
2 Objective Aims to determine the cost of
Aims to provide insights to support
goods sold or services management decision-making,
provided. planning, and control.
3 Scope Limited to the calculation and
Encompasses a broader range of
analysis of costs. activities, including budgeting,
forecasting, and performance
evaluation.
4 Users Primarily used by accountants Used by managers and executives
and production managers. across various functions, including
finance, marketing, and operations.
5 Reporting Reports focus on cost Reports provide insights and
calculations and analysis. analysis to support management
decision-making.
6 Decision-Making Provides information for cost- Provides information for strategic,
related decisions. tactical, and operational decisions.

Elements of Cost
There are three elements of cost, namely: materials, labour and expenses. These result in the
following classes of cost: a.
a. Materials cost
b. Labour cost
c. Expenses

Methods of Costing
The cost of products or services is determined using several methods. The use of a given
method is dictated by such factors such as: the nature of cost units, the production
process, the mode of cost accumulation, the duration of work, etc.
The following are the well-established methods of costing:
a. Job /Batch costing
b. Contract costing
c. Process costing
d. Service costing

Techniques of Costing
Irrespective of the type of costing method being applied there are various approaches that
could be adopted. These are:
a. Absorption Costing
b. Marginal Costing
c. Standard Costing using
d. Absorption Costing

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