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Cost Accounting Systems
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Ashraful Rasel
H.S.C from Gazipur Cantonment Board College; BBA & MBA from Dhaka University major in Accounting and Information Systems.  
By Ashraful Rasel
Published on 26 September 2009
 
Definition of Cost Accounting Systems and different types of Cost. Direct costs, Indirect costs, Unallocated costs, Product costs, Period costs, Cost accumulation, Cost assignment, Cost allocation, Cost pool.

Cost Accounting Systems
All kinds of organizations - manufacturing firms, service companies, and nonprofit organizations - need some form of cost accounting, that part of cost management system that measures costs for the purpose of management decision making and financial reporting. Managers rely on accountants to design a cost accounting system that measures costs to meet each of the three purposes of a Cost Management Systems(CMS). The role of the Cost Accounting Systems can not be denied in each and every manufacturing organizations.

Cost Accounting is that part of the cost management system that measures costs for the purpose of management decision making and financial reporting. The cost accounting system typically includes two processes:

1. Cost accumulation: Collecting costs by some "natural" classification such as materials or labor, or by activities performed such as order processing or machine processing.

2. Cost assignment: Tracing or allocating costs to one or more cost objectives such as activities, processes, departments, customers, or products.

Cost: A sacrifice or giving up of resources for a particular purpose, frequently measured by the monetary units that an organization must pay for goods and services.

Cost object: Anything for which decision makers desire a separate measurement of costs. Examples include departments, products etc.

Direct costs: Costs that can be identified specially and exclusively with a given cost objective in an economically feasible way.

Indirect costs: Costs that can not be identified specifically and exclusively with a given cost objective in an economically feasible way.

Cost allocation: Assigning indirect costs to cost objects using plausible and reliable cost drivers.

Unallocated costs: Costs for which we can identify no relationship to a cost objective.

Product costs: Costs identified with goods produced or purchased for resale.

Period costs: Costs that become expenses during the current period without going through an inventory stage.

Cost pool: A group of individual costs that a company allocating to cost objectives using a single driver.