Basic Concepts Of Cost Accounting

Cost accounting system is the sum methods and techniques used by businesses allowing them to track resources consumed in production and distribution of services or goods to consumers and is also used for external reporting requirements meaning balance sheets and income statements. The cost accounting system is usually designed to meet particular needs of individual companies, for that reason there are many systems businesses apply according to their needs.

DOMAL company use the traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the products manufactured.

The traditional method attribute or localize the factory 's indirect costs to the items manufactured on the basis of volume such as the number

It implicate the assemblage and recording of the elements of expenditure acquire to reach a purpose, to carry out an activity, function, or program, to realize a unit of work or a project, or to do a specific job.

1.2 Basic Concepts of Cost

Cost can be determined as the value demanded to execute some goal, objective, or aim. In the private sector, costs are acquired for the purposes of generating revenues in excess of the funds used up. While this benefit motive is not applicable to most general organizations, the experience as to whether a cost is suitable and equitable is still the same: Did the commitment of resources accelerate the system or program toward some agreed-upon goal or objective?

There is five basic cost components are involved in any activity, operation, project, program:

1- Labor or personal services (salaries, wages, and related employee benefits).

2- Contractual services (packages of services purchased from outside sources).

3- Materials and supplies

Variable costs are more or less constant per unit, but their total hesitates in direct ratio to the total mass of activity.

The acquisition of equipment glorifies a fixed cost. As the mass of activity increases, the total cost of the equipment is disseminate over an increasing number of units. Therefore, the cost per unit falls less and less. On the other hand, illustrate variable costs. As the number of unit increase the variable cost increases till a specific point of production and it will falls or rises again due to quantity produced.

1.3 Measurement of Costs

A fundamental objective of cost accounting is to recognize and measurement costs incurred in execute some program goal or objective. Several approaches to the mensuration of costs may be applicable, however, depending on the informational needs of guidance.

Many indirect costs, however, are clearly beyond the guide of the managers of operating departments. In acknowledgment of this act, the responsibly of localize costs to products is appoint to an operating division only those costs that its managers can rule, or at least authorize.

Many argue that this approach is the only proper measure of the financial stewardship of an operating