Cost accounting as a branch in management accounting

An organization’s accounting system must provide a good “map” that links the costs and the processes used to create goods and/or services. Employees and workers working in any organization need this information in order to assess as to how well they use the company’s resources. Determining the least costly combination of direct labor, direct materials and overhead for creating a product or service is critical for an organization in order to remain competitive. A good cost accounting system will provide a map to match the processes that consume resources with associated costs so that managers can decide as to how best they can provide the products or services to the customers.

Cost accounting concepts and practices are to be understood thoroughly. Students, who try to remember the concept without undertaking them will not be able to apply them to various business situations and hence, a thorough understanding of the concepts and constant practice of them are essential.

Cost accounting can be defined as a specialized branch of accounting which involves classification, accumulation, assignment and control of costs. The following are some important definitions of cost accounting:

According to W.W. Bigg, “Cost accounting is the provision of such analysis and classification of expenditure as such will enable the total cost of any particular unit of production to be ascertained with reasonable degree of accuracy and at the same time to disclose exactly how such total cost is constituted”.

According to Wheldon, “Cost accounting is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and/or excesses as compared with previous experience or with standards”.

According to Chartered Institute of Management Accountants (C I M A) England, “Cost accounting is the process of accounting for costs from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost units. In its wildest usage, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned.

In a nutshell, cost accounting is the process of accounting for costs with the object of ascertaining and controlling the costs at all levels.

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