The purpose of this research is to examine the roles and uses of cost accounting. The concepts involved in cost accounting are also reviewed, and the use of cost accounting in a firm's decision-making processes is assessed.
COST ACCOUNTING: DEFINITION, ROLES,
In the United States (US), cost accounting is a part of managerial accounting. Where financial accounting is concerned with recording actual financial transactions, managerial accounting is concerned with the discovery of relationships in financial data which enhance managerial decision-making (Garrison, 1986, p. 19).
One of the critical factors involved in cost accounting is the differentiation of costs into fixed and variable classifications (Anthony, and Reece, 1986, pp. 548-553). Fixed costs are those which must be borne by a firm, regardless of activity levels, while variable costs are those which fluctuate according to activity levels. Through the differentiation of costs into fixed and variable classifications, managers are able to construct break-even charts and other decision-making and control tools (Anthony, and Reece, 1986, pp. 561-565). Thus, cost accounting plays a major role in a firm's decision-making processes.
Production costs are also considered in the contexts of full costs, direct costs, indirect costs, job costs, process costs, standard costs, joint costs, and others (Anthony, and Reece, 1986, pp. 589-693). These costing concepts are all a part of the cost accounting process. Each of these concepts provides the manager with a different perspective of costs. These different perspectives may provide a means of enhancing the efficiency of an operation, without damaging the integrity of the firm, even though most of the costs derived through the application of these concepts of costs will differ from the costs derived through the application of financial accounting concepts (Anthony, and Reece, 1986, pp. 598-643). The use of costs derive...