Essay On Traditional Cost Accounting

2.0 Introduction
Accounting techniques provide useful tools for assessing the performance and ascertaining the profitability of business operations. ‘Profit’ is one of the simplistic measures of performance. Profit is the difference between revenues and costs. Revenues usually come from sales and other income generating activities of the business establishment. Cost on the hand includes all expenditures incurred in the course of running the business. These cost could be direct or indirect in nature depending on their traceability to a cost or cost unit (direct cost, indirect cost, cost center and cost unit are defined later). In traditional cost accounting, direct costs are allocated to cost centers or cost the cost units where they can be traced.

This unit or division does not take in any income, but must spend money to fulfill an important function. (Hunkar Ozyasar & Demand Media). To Ben-Arieh & Qian, (2003, p.172), “cost centers are the resources that are used directly to produce the end product”.
Cost unit
A cost object is anything for which cost data are desired-including products, customers, jobs, and organizational sub-units. (Garrison, Noreen & Brewer, 2003)
Traditional Cost Accounting
Activity Based Costing
2.3 Shortcomings of traditional cost accounting from a logistics point of view
Goldsby and Closs (2000) reported that “traditional accounting methods tend to lump costs into three broad categories”. These broad categories include: (a) Materials, Labor (b) and (c) Overheads. According to them, this traditional system “fails to distinguish which products or customers generate the respective costs” (Goldsby and Closs, 2000). Logistics cost usually suffer from the consequences of such classification system. Manunen (2000) identified logistics cost to include “all the costs in a supply chain that are caused by the flow of material, including the cost of information flow