Cost accounting uses information provided by financial accounting together with much more details of operations of cost accounting is collection, processing and evaluation of operating, data. e.g. cost of products, operations, processes, jobs, quantities of materials consumed, labour time used etc. for internal planning and control as well as for external reporting.
Basically cost accounting is for internal management of accounting entity; however, it also provides information for external reporting. The information provided for external reporting is quite different from information provided by financial accounting. For example, a medicine company wants to make a price adjustment; the company must submit a detailed cost report Ito the government to justify its claim for price increase. Similarly, in order to give a quotation for a cost plus profit contract a cost statement is to be submitted.
Production planning and scheduling, inventory planning and management, labour time and labour cost budgets are some of the areas where management is assisted by cost accounting. Cost accounting also provides information to management regarding actual results such as output of various departments,actual labour time and cost, cost of materials in process etc.
This information is provided at much higher speed as these reports of actual results are prepared on hourly, daily and weekly bases. Cost accountant collects data both in monetary and non monetary terms e.g. kilograms of materials used, hours worked etc. Then these data are compared with pre-established standards and budgets to exercise managerial control over the operations.
The application of accounting and costing principles, methods and techniques in the ascertainment of costs and analysis of savings and/or excesses as compared with previous experience or with standards.
Jennifer edwards