Page 8 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 1: Introduction to Cost Accounting

“Costing is the proper allocation of expenditure whereby reliable cost may be ascertained and Notes
suitably presented to affford guidance to the producers in control of their business”.
—Harold James
“Costing is the classifying, recording and appropriate allocation of expenditure for the
determination of the cost of products or services, and for the presentation of suitably arranged
data for purposes of control and guidance of the management. It includes the ascertainment of
the cost of every order, job, contract, process, service, or unit at as may be appropriate. It deals
with the costs of production, selling and distribution”.
—Harold J. Wheldon
“Cost accounting means the application of principles of accounting in such a manner that the
management is always assured of a detailed recording and analysis of expenditures incurred
in connection with the operation of any business so that it is able to measure performance and
control activities”.
—Jeremiah Lock Wood

Self Assessment

State whether the following statements are true or false:

1. Financial accounting is concerned with the classification, accumulation, control and
assignment of costs.
2. The cost accounting system is directly concerned with control of inventories, plant assets
and funds expanded on functional activities.
3. The cost accounting system is independent of the fi nancial accounts.

1.2 Scope and Use of Cost Accounting

The scope of any subject refers to the various areas of study included in that subject. As regards,
the scope of cost accounting is very wide and includes the following:

1. Technique and Process of Costing: The technique of costing involves two distinct steps,
namely, (a) classification of costs according to various elements, and (b) allocation and

apportionment of the expenses which cannot be directly charged to production. As a
process, costing is concerned with the routine ascertainment of cost with a formal and
selected procedure.
2. Cost Control: Cost control is the guidance and regulation by executive action of the costs
of operating and undertaking. This guidance and regulation is done by the executive who
is responsible for causing the deviation. This process will become clear by enumerating
the steps involved in any technique of cost control. Cost control is exercised through a
variety of techniques such as inventory control, product control, quality control, budgetary
control, standard costing, etc.
3. Ascertainment of Cost: It deals with the collection and analysis of expenses, the measurement
of production at different stages and linking up of production with the expenses. To achieve

the first step, costing has developed different systems such as Historical or Actual Cost,
Estimated Cost and Standard Cost. For achieving the second step, costing has developed
different methods such as single or output costing, job costing, contract costing, etc. Finally,
for achieving the last step costing has developed important techniques such as, Marginal
Costing, Standard Costing, Budgetary Control, Total Absorption Costing and Uniform
Costing.

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