What Is Cost Accounting;Why It Is Important In Book Keeping

Cost Accounting is the term applied to that system of accounting by which the cost of production or service rendered at any particular stage of any product. It differs from the ordinary system in that the latter simply gives the results of the business or section of the business as a whole, without attempting to dissect the cost of manufacture or service rendered at any particular period The two systems are, however, usually worked concurrently by independent staffs, although to bring out the best of both systems some sort of liaison is necessary.

What Is Cost Accounting;Why It Is Important In Book Keeping

The value of the cost accounting system is that the costs are put on record, and consequently are always handy for reference for comparative purposes. It provides a safe check against wastage, either in material or time, and is a sure means of discovering that section of a business which is not pulling its weight.

Types of Costs

Basically there are two types of costs, the direct and the indirect :

Direct Costs – are objectively linked to the production of a product or service provision

Example: In a brewery the bottles, lids, labels and liquid are direct costs, because for each beer produced, you have an extra expense with these items

Indirect costs – are costs that are not directly identified in products and services

Example: Expenditures with the financial, marketing and management teams within the same industry would be considered indirect costs

What Is The Function Of Cost Accounting?

Briefly, the main functions of cost accounting are:

  • Establish costs for a given period;
  • Have greater control over the physical quantities produced, by means of the average cost;
  • Establish cost control systems that allow analysis, comparison, reduction or cost improvement;
  • Provide cost data for certain alternatives so that management can make choice decisions.

With the information provided by cost accounting, you can better control production costs and help with decision making. Most importantly, these costs are always under control and monitored so that your management never gets out of hand.

Cost-book System,

System of partnership in various Cornish and Devonian mines. It is a particular method of keeping the accounts and so managing the affairs of the partnership that the exact financial state of the concern can be readily ascertained. The Stannaries Act provides that the cost-book, which contains an abstract of the working expenses and returns on sales, must be made up and laid before the shareholders once in every 16 weeks.

The process of formation of a cost-book company is begun by obtaining a licence to search for minerals; if ore is found a lease is granted for a term of years, and then a meeting of the co-adventurers is called to decide on the constitution of the company.

Cost-book companies may be registered under the Corn-panics Act, 1948. A member of a cost-book company is at liberty to transfer his shares without obtaining the consent of the other members, and he may also insist on the company taking back his shares and paying him for them. A cost-book company, or rather partnership, is not dissolved by a member merely obtaining an account against the other members or transfer-ring his shares, or by the death or bankruptcy of any member.

The interest of a deceased member devolves as personalty on his next of kin. Members or shareholders cannot, like ordinary partners, bind fellow members by any contract other than one for necessaries required for the working of the mine in accordance with the custom of the locality. Cost-book mines are commonly managed by an agent of the share-holders, but such agent cannot make the members liable on a bill of exchange.

by Abdullah Sam
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