Talk:Cost accounting

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Substantial Edits Required on Cost accounting Page[edit]

As stated in the issues listed below, Cost accounting is a subset financial accounting and used primarily for external reporting purposes. Whereas management or managerial accounting and it's various costing approaches are used for internal reporting purposes only. The Cost accounting introduction requires substantial edits to correct misleading information. The only costing application that should remain under Cost accounting is Traditional Standard Costing (TSC) that is used and complies with GAAP for inventory valuation, cost of goods sold, etc. The other approaches need to be removed from this page. They are properly listed alphabetically in Specific Methodologies under Management accounting and discussed at length on their own pages. See Figure 1, in Management accounting for a visual representation of where Cost accounting sits in the hierarchy of Enterprise Financial Management as defined by the International Federation of Accountants. Bewiki777 (talk) 21:07, 25 July 2012 (UTC)

In my point of my cost accounting is the soul of any organization.


Seem's biased towards troughoutput accounting vs. ABC, direct costing, lean accounting and other initiatives. Details on throughoutput accounting belong in it's own page. 04:38, 2 May 2007 (UTC)

Some issues[edit]

The intro DOES need to be rewritten. The Engligh grammer is flawed. It sounds like it was written in some language other than English and then translated or written by a non-native English speaker. On top of that... it seems to provide little value in describing what cost accounting is. It's more of a sales pitch on justifying the need for cost accounting. — Preceding unsigned comment added by (talk) 15:32, 4 November 2011 (UTC)

The article states that "Cost accounting does not follow GAAP". However, in IFRS and US GAAP the valuation of inventory and work-in-progress is based on cost. GAAP requires cost accounting. Organisations which report under those accounting systems will want cost accounting systems which can produce GAAP-compliant inventory valuations at a balance sheet date.

The article describes standard cost as necessarily including allocated overheads. It is possible to have a standard costing system which only includes marginal costs. The thing which distinguishes "standard cost" is the process of setting a standard, which provides the opportunity of comparing actual costs with that standard.

The real alternatives to standard cost systems are

  • actual cost systems, where an organisation measures the actual cost of products or activities; for example, a construction company measuring the actual cost of a new building;
  • hybrids with some actual and some standard costs. For example, an IT services company might measure the actual numbers of hours which its staff spend on a particular project, but value the cost per hour using a standard rate for each member of staff.

The "weaknesses of standard cost accounting" as described in the article are mostly issues of using a full-cost including allocated overheads as a basis of setting minimum sales prices.

I do not think that you would be able to prove the assertion that "modern companies have few truly variable costs". This might be true for manufacturing companies with high-value, long-life capital equipment, but it is not true for for services companies or organisations which outsource their supply. Wait long enough and everything is variable.

"Throughput accounting" as described in the article is not cost accounting. The example is using a calculation of contribution per hour from the constrained resource (the metal shop).

Swinnow16 22:27, 22 August 2007 (UTC)

Agree that the "Cost accounting does not follow GAAP" comment is suspect, especially if GAAP = US-GAAP. US-GAAP pretty much forces the use of cost accounting; in particular the matching principle, which derives from the historical-cost and revenue-recognition principles. If an expense can be treated as an expense at the time it is incurred, then there is little or no need to cost anything. See Generally Accepted Accounting Principles (United States).

However, I believe "modern companies have few truly variable costs" is fair enough, although the statement could do with some clarification. All expenses will vary with time. To be "variable" in this context, they have to vary with activity without inherently changing the business (excludes restructuring). Agree that outsourcing, like casual-labour, is usually variable. 23:01, 11 September 2007 (UTC)

There is a difference between the costs assessed for financial accounting purposes and the costs that are relevant in a managerial situation. In the managerial situation costs are prepared in such a manner as to MAXIMIZE usefulness. In some situations this involves current costs not historical costs. Furthermore, cost accounting is forward looking, and many/most historical costs are ignored unless they will be incurred in the future and are not committed. Because of this, many aspects of cost accounting IGNORE GAAP, which are primarily focused on external reporting NOT internal decision making. 03:13, 6 October 2007 (UTC)

Many aspects of MANAGEMENT accounting ignore GAAP. A feature of cost accounting is cost-allocation, and this is usually done to accomodate GAAP requirements, but is often opposed for managerial decision-making (e.g., see the Lean accounting page). This argues that cost accounting is part of financial accounting, not management accounting. I suspect this article needs to make this distinction clearer, and the GAAP requirements are probably part of this distinction.
Trevithj (talk) 23:40, 15 September 2008 (UTC)

Cost Accounting systems indeed a benchmark in Management.[edit]

Total internal management system of any houses will be in dark without implementation of Cost Accounting System.

The price implication of any Product totally depends on the segregation of direct and indirect variables of the Cost. The acurate apportion of cost, gives an accurate figure of price control.

Besides that, with the develop of Competition and globalization of product an Unit or Standardize Cost Accounting System is very much required for transparency of the Stake-holders and to evaluate true & fare benchmarking of their houses.

Capital Cost or fixed cost is one of the volatile words in current throughput system of accounting. Because, nothing is fixed or secured in present life except the duration of service provided by the expenses incurred. In Cost Accounting System these calculation is vital for decision making by management expert.

Asim Mukherjee —Preceding unsigned comment added by Asim Mukherjee (talkcontribs) 15:28, 4 December 2007 (UTC)

Management and financial accounting both use "costs", but does this make them "cost accounting"? To clarify:

Financial accounting requires that expenses be associated with revenue (a GAAP requirement). I buy raw material last month, I sell it as finished goods next month. What is it this month? Not expenses (yet) but an increase in assets (value-added). It doesn't become an expense until next month when the revenue comes in (cost of goods sold). More assets are good - should I buy earlier and sell later?

Management accounting focuses on the control of working capital. I spend money last month, I get the revenue next month, this month I'm using working capital. Less working capital is good - should I buy later and sell earlier?

So "cost" can mean delayed reduction of an asset, or an immediate expense when incurred. Which one does "cost accounting" support? This needs to be clarified to give this article direction. At the moment, it seems a kind of tug-of-war between "financial cost" and "management cost". -- Trevithj (talk) 00:27, 16 September 2008 (UTC)

External link to Cost Accounting web page[edit]

I added the external link section and included a link to a website that contains also several definitions related to Costs and Costs Accounting, just to provide a different point of view. Some of the data might be similar to this and other articles included in Wikipedia, but its just to give the reader another source to confirm what he has encountered or in a different case, to possibly find what he or she was looking for. I like very much Wikipedia and try to contribute as much as I can, in English and Spanish. —Preceding unsigned comment added by Alfonso13 (talkcontribs) 13:56, 31 October 2008 (UTC)