Custom Search

Basic Aspects of Cost Accounting

Saturday, May 5, 2012

Why organizations use costing systems

An organisation’s costing system is the foundation of the internal financial information system for managers. It provides the information that management needs to plan and control the organisation’s activities and to make decisions about the future. Examples of the type of information provided by a costing system and the uses to which it might be put include the following.

  • Actual unit costs for the latest period; could be used for cost control by comparing with a predetermined unit standard cost, which would also be provided by the costing system. Could also be used as the basis for planning future unit costs and for decisions about pricing and production levels.
  • Actual costs of operating a department for the latest period; could be used for cost control by comparing with a predetermined budget for the department. Could also be used as the basis for planning future budgeted costs and for decisions such as outsourcing.
  • The forecast costs to be incurred at different levels of activity. Could be used for planning, for decision making and as a part of cost control by comparing the actual costs with the forecasts.

This is by no means an exhaustive list of the information that is provided by a costing system but it should serve to demonstrate that the main use of a costing system is to provide the basic information that management needs for planning, control and decision-making.

The word ‘cost’ can be used in two contexts. It can be used as a noun, for example, when referring to the cost of an item. Alternatively, it can be used as a verb, for example, we can say that we are attempting to cost an activity. CIMA’s definition of cost used in these two contexts is as follows:

What is meant by ‘cost’?
  • As a noun: ‘the amount of expenditure incurred on, or attributable to, a specified thing or activity’.
  • As a verb: ‘to ascertain the cost of a specified thing or activity’.

The terminology goes on to explain that the word cost can rarely stand alone and should be qualified as to its nature and limitations. You will be seeing throughout this text that there are many different types of cost and that each has its usefulness and limitations in different circumstances.

Cost units

The CIMA Management Accounting: Official Terminology defines a cost unit as ‘a unit of product or service in relation to which costs are ascertained’.

This means that a cost unit can be anything for which it is possible to ascertain the cost. The cost unit selected in each situation will depend on a number of factors, including the purpose of the cost ascertainment exercise and the amount of information available.

Cost units can be developed for all kinds of organizations, whether manufacturing, commercial or public service based. Some examples from the CIMA Terminology are as follows:

Industry sector Cost unit

Brick-making 1000 bricks

Electricity Kilowatt-hour (k W h)

Professional services Chargeable hour

Education Enrolled student

Activity Cost unit

Credit control Account maintained

Selling Customer call

The above is not exhaustive. A cost unit can be anything which is measurable and useful for cost control purposes. For example, with brick-making, 1,000 bricks is suggested as a cost unit. It would be possible to determine the cost per brick but perhaps in this case a larger measure is considered more suitable and useful for control purposes.

Notice that this list of cost units contains both tangible and intangible items. Tangible items are those which can be seen and touched, for example, the 1,000 bricks. Intangible items cannot be seen and touched but they can be measured, for example, a chargeable hour of accounting service.

Composite cost units

The cost units for services are usually intangible and they are often composite cost units, that is, they are often made up of two parts. For example, if we were attempting to monitor and control the costs of a delivery service we might measure the cost per tone delivered. However, ‘tone delivered’ would not be a particularly useful cost unit because it would not be valid to compare the cost per tone delivered from London to Edinburgh with the cost per tone delivered from London to Brighton. The former journey is much longer and it will almost certainly cost more to deliver a tone over the longer distance.

Composite cost units assist in overcoming this problem. We could perhaps use a ‘tonnemile’ instead. This means that we would record and monitor the cost of carrying one tone for one mile. The cost per tone-mile would be a comparable measure whatever the length of journey and this is therefore a valid and useful cost unit for control purposes.

Other examples of composite cost units might be as follows:

Business Cost unit

Hotel Bed night

Bus company passenger mile

Hospital In-patient day

Cost centres

The CIMA Terminology defines a cost centre as ‘a production or service location, function, activity or item of equipment for which costs are accumulated’.

A cost centre is used as a ‘collecting place’ for costs. The cost of operating the cost centre is determined for the period, and then this total cost is related to the cost units which have passed through the cost centre.

For instance, an example of a production cost centre could be the machine shop in a factory. The production overhead cost for the machine shop might be £ 100,000 for the period. If 1,000 cost units have passed through this cost centre we might say that the production overhead cost relating to the machine shop was £ 100 for each unit.

The CIMA definition of a cost centre also mentions a service location, a function, an activity or an item of equipment being used as a cost centre. Examples of these might be as follows but you should try to think of some others:

Type of cost centre Examples

Service location Stores, canteen

Function Sales representative

Activity Quality control

Item of equipment packing machine

If you are finding it difficult to see how a sales representative could be used as a cost centre, then work carefully through the following points.

What are the costs which might be incurred in ‘operating’ a sales representative for one period?

Examples might be the representative’s salary cost, the cost of running a company car, the cost of any samples given away by the representative and so on. Say these amounts to £ 40,000.

Once we have determined this cost, the next thing we need to know is the number of cost units that can be related to the sales representative.

The cost unit selected might be £ 100 of sales achieved. If the representative has achieved £ 400,000 of sales, then we could say that the representative’s costs amounted to £ 10 per £ 100 of sales. The representative has thus been used as a cost centre or collecting place for the costs, which have then been related to the cost units.


Geroge Emmanual said...

I am the businessman and selling on e bay. Tropical Pure Cardamom - Dried Seed Pods 50 g - spices, I just want to contact you for accounting part. Can you immediately contact me through my google plus profile. Also please check one of my e bay listing

Nice info!

Medical Training Course

Stephanie Tan said...

Thank you for sharing such a informative source on Accounting System! Highly appreciated!

khushbu said...

Do your accounting homework, accounting assignments with our accounting helps you to do your accounting homework and accounting assignments email me homework solution and accounting tutoring help. Our homework assistance on

Accounting tutoring help

Accounting homework solution

Accounting homework

Accounting assignments

William Stinner said...

Thanks for providing such a great article, it was excellent and very informative. Please Visit:

accounting in London
payroll services In London

Yolanda Smith said...

Thanks for the sharing an informative content that will really help to the people who are planning to manage all their accounting needs. This saves money, time and resource.

Offshore Accounting Service

max den said...

amazing post

Thomas Degarmo said...

A company is run by the profit and the main sources of generating profits are selling the products and decreasing the expenses. To decrease expenses during production cost accounting techniques are applied and it is the basic for custom assignment writing services any student who wants to flourish in respective industry.

Umair Nazaqat said...

Thank you so much.

JP Richards said...

Hey Management Consultant,

Great post for accountants!

Similarly, for virtually any accountants interested, we gives a successful accountant marketing system to obtain quality leads.

Check it out:

Keep up the inspiring posts,

-- JP

Miriam Steve said...

One may never have the best understanding of why organizations do use costing systems, but then this blog have just shed light on the issue. I feel fully informed.
Professional article review editors that have been highly trained to always offer excellent help.

endy smith said...

In a market economy product cost is the most important indicator of production and economic activity of the enterprise. The calculation of this indicator is necessary to assess the implementation of the plan on this indicator and its dynamics. To find more visit:

Uhlenbrock Cpa said...

Accounts of a firm are its financial records of transactions conducted by the firm. It is important to maintain accurate financial records to analyse the performance of a business. Uhlenbrock CPA provides accounting and financial consulting for small or medium size businesses in San Antonio. Whether you are a new business or an established one in San Antonio, you need a Certified Public Account to handle the accounting of your business. For any queries regarding business accounting in San Antonio, feel free to call (210) 701-1040.

Kian Turnbull said...

It can be used as a noun, for example, when referring to the cost of an item. Alternatively, it can be used as a verb, for example, we can say that we are attempting to cost an activity.

Uhlenbrock Cpa said...

Nice Blog.Thanks for Sharing

bookkeeping in San Antonio
accountant in San Antonio

accounting is not easy mehthod for every one but visting this blog anyone can make easy for it.

I learned a lot from reading through some of your earlier posts as well and decided to drop a comment on this one!

Henry cfoonrent said...

Nice blog. Thanks for sharing. We are offering Business Support .For more details please visit our website. Hysteroscopy surgery

App Developers said...

Hi, Really great effort. Everyone must read this article. Thanks for sharing.

Ateeq said...

I read your excellent post. After reading this post, i really appreciate your effort and my request is to please share us more post in future. Keep it up.

Flott India said...

very informative post for me as I am always looking for new content that can help me and my knowledge grow better.

That is an extremely smart written article. I will be sure to bookmark it and return to learn extra of your useful information. Thank you for the post. I will certainly return.

very informative post for me as I am always looking for new content that can help me and my knowledge grow better.

I don’t know how should I give you thanks! I am totally stunned by your article. You saved my time. Thanks a million for sharing this article.

GST Training said...

Awesome work.Just wanted to drop a comment and say I am new to your blog and really like what I am reading.Thanks for the share

KarlDeville said...

Thank you for taking the time and sharing this information with us. It was indeed very helpful and insightful while

being straight forward and to the point. | |

aadhiya gupta said...

Thanks for looking professional services the list of Verified Foogle Packers And Movers. Compare to save money and select the best #

Packers and Movers in Bangalore
Packers and Movers in Gurgaon
Packers and Movers in Pune

Thank for information visit top most articles list get instant quote from multiple:
Top Packers and Movers in Delhi
Top Packers and Movers in Noida
Top Packers and Movers in Faridabad
Top Packers and Movers in Ghaziabad
Top Packers and Movers in Gurgaon
Top Packers and Movers in Guwahati

There are majorly two branches of accounting. Financial accounting and Management accounting. Both are integral part of a business. Both accounting go hand in hand. You have elaborated it in detail that makes this blog informative. Thank you for sharing.

Mohit Panwar said...

Hi Dear,

i Like Your Blog Very Much..I see Daily Your Blog ,is A Very Useful For me.

You can also Find Cost Control course

Academedcourses provides online cost control courses worldwide. Management of organizations compare actual expenditure to the budget expectations, thereby saving time and money.

Visit Now -

We are always shifting are goods according’s to 1bhk, 2bhk, 3bhk and 4bhk shifting services are provide of entire of a building’s. Packing and moving or car transportation and relocation of motor vehicles to the commercial or factories’ products for hassle expect done shifting services in India. Once the packing is done with almost for the loading is done with immense are done by team of experts while the boxes can be shifting of heavy machinery equipment’s providers solution’s by the folder services managements by moving and packing company. List of packer and mover in India, take at it happens to be persons switch that can intern commonly generally is an excellent for the Away a techniques associated with persons for the needs services in India.

Away Packers and Movers
Packers and Movers Bangalore
Packers and Movers Chennai
Packers and Movers Delhi
Packers and Movers Gurgaon
Packers and Movers Hyderabad
Packers and Movers Mumbai
Packers and Movers Pune

Gracy Smith said...

Intuit QuickBooks Support - Our QuickBooks support technical people are ready to offer the high quality business management solution and technology consulting services 24x7 for your growing business requirements without any delay. We have a number of satisfied QuickBooks customers across numerous industries. We have the great knowledge and experience you can rely on in a business partner. You can call for any help at Toll Free QuickBooks Support Number: 1-855-861-4161.

aadhiya gupta said...

There are anything’s packing and goods better shifting services in Gurgaon, No big names with but, fame gained almost offering relocation enlisted on our website (Foogle Packers) and on top services of the entire growth keep dealing with Away experts trust upon of budget reasonable while assist a car and motor vehicles or installed from one location tracking with their products and also give for help to wonderful assist a decant of best packer and mover in Pune as well as process companies.

Porn Hubb said...

Child Porn | Child Porn | Free Porn Movies | Free Porn Movies | Child Porn | Free Porn Movies | Free Porn Movies | AOL Customer Care | Child Porn | AOL Customer Care

MD.Shameem Mridha
Thank you, I’ve just been searching for information about this topic for a while and yours is the greatest I’ve discovered till now.

Uhlenbrock CPA said...

I agree that an organisation’s costing system is the foundation of the internal financial information system for managers. Really helpful blog. I was searching for bookkeeping services in San Antonio and got this blog.
Thanks for sharing this blog.

Mridha IT
Thank you, I’ve just been searching for information about this topic for a while and yours is the greatest I’ve discovered till now.

Jon Sigurdsson said...

Thanks for the post!
Some good info on business accounting

Small business Accountant Melbourne

sghdfyh said...

Nice Blog, thanks for sharing affordable information. And We are 3rd party Aol Desktop Gold Service provider. Our Service Support 24*7 by certified technician..
Aol Gold Download
Aol Desktop Gold
Aol Gold

Jon Sigurdsson said...

Thanks for sharing this!
Small Business Accounting

google said...

Nice Blog!!
AOL Tech Support Number

AOL Support Phone Number

AOL Technical Support

AOL Support Number

Yahoo Customer Support Contact Yahoo Customer support phone Number 1-844-804-3954 to get resolve your queries with your yahoo account. Sometimes the users get problems while they accessing their yahoo account. That's why the people wants to contact Yahoo Customer Support Number available 24/7. You can resolve issues instantly by yourself.

AOL Customer Support 1-844-804-3954 toll-free technical resolution we are provide such a good service.if you have any kind of problem-related AOL Account.we are resolve your issue and we will happy to assist you so you contact AOL customer support

Hotmail customer support tol-free 1-844-804-3954, If you have any query regarding Hotmail and outlook Server error irritate Hotmail user as he can not access his Hotmail account. You can fix the server error with the help of Hotmail customer support team

William Hurt said...

I have found that this site is very informative, interesting and very well written. keep up the nice high quality writing. Accounting Practice Problems

This Blog is wornderful to understand the various aspects of accounting. As, accounting is a very wast subject to understand. Also, one should have special skills to understand the various parts of accounting. And I must say this is marvelous blog post to go through.

google said...

Nice post.

On the off chance that you have any issue identified with the AOL email settings and setup, you can approach AOL Toll-Free Number and can know the best of information's from them. You will be associated over the telephonic call and can know the best of insights about it.

AOL Toll-Free Number

AOL Technical Support

AOL Support Number

Unknown said...

Customers can call us to speak with an expert professional that we have employed to provide solutions for all aspects and scenarios of AOL errors on AOL help and support number +1-855-718-2888.
AOL Help and Support Number

AOL Customer Service

AOL Toll-Free Number

AOL Support Number

google said...

At AOL Support, the customers can contact at AOL Support Phone Number (toll-free) +1-855-676-7123
AOL Technical Support
AOL Email Support
AOL Customer Care Number

Siara Bano said...

AOL Customer Support team will assist or help them to reach the attainable self-governing third-party AOL retriever password support.
AOL Help and Support
AOL Customer Service
AOL Support
AOL Email Support

HP Customer Service Number is always ready to help and assist you fix any kind of technical glitches with a joy. For more info, you can visit here
HP Customer Service Number

Noah said...

Great Post!!
Please Visit Here:
HP Customer Service Number
HP Help Number
HP Support Number

AOL is a American company developed in America and if you are getting any problems related with AOL you can contact AOL Tech Support Number

1-844-305-6566. 24\7 available for customer service

jeeva vector said...

Thanks for sharing nice post…
We are providing best third party services for AOL Desktop Gold. If you want all information so you just call any time Aol desktop download 1-877-219-6492
Download AOL Desktop Gold
AOL Desktop Gold Download
Download AOL Gold
AOL Gold Download
Aol desktop gold
Aol desktop download
download aol 9.7
Aol 9.7 download
Download AOL Desktop Gold
AOL Gold Download Install
Free AOL Gold Download
AOL Desktop Gold Software
AOL Gold Desktop Download
AOL Desktop Gold Software
Download AOL Gold Software
How to Install AOL Gold Desktop
AOL Gold Help Contact
Free AOL Gold Desktop 9.7 Download
Download AOL Gold 9.7 Desktop
Install AOL Gold

james anderson said...

Really it is nice and informative and helpful blog
for more relevant information call 1-888-382-2857
Visit Here:-

Bellsouth customer service
Bellsouth email support
Bellsouth contact number
Bellsouth Technical Support
Bellsouth Customer Service Phone Number
Bellsouth Customer Care
Bellsouth Customer Support
Bellsouth Tech Support
Bellsouth Tech Support Number
Bellsouth Email Toll Free Number

Neena Jordan said...

quicken support
quicken support phone number
quicken support chat
quicken bill pay support
quicken support live chat
quicken premier support
quicken support for mac
support for quicken 2015
quicken support site
how to contact quicken support by phone
quicken support phone numbers
quicken free support
quicken customer service live chat
quicken 2017 customer service

Naseem Ansari said...

Nice post the blog, It's a awesome article.
Visit my site:
Roku Phone Number

We assist our customers through our professional technical guide and provide you the right solution. To avail our professional mail help offerings, call us no longer at our toll-unfastened Aol Customer Service Number and troubleshoot the entire hassle instantly. To understand greater such beneficial recommendation you can go to our web site anytime or deliver us a call on 1-800-329-1530.
Aol Customer Service Number

kunti bilwal said...

Hi, I am kunti bilwal.

Wonderful information, thanks a lot for sharing kind of information.

This is just the kind of information that I had been looking for,

Thanks a ton once again. This is very nice one and gives in-depth information.

you will find more information visit on

Alex Jordan said...

Thank you for sharing your info. I truly appreciate your efforts and I will be waiting for your further post thanks once again.

QuickBooks point of sale

QuickBooks PDF repair tool

QuickBooks file doctor

kunti bilwal said...

hi I am kunti
I read your article it's very nice and I very happy to see your article.I Want to read your blog every time when i open this and your information is truely good i loved it i have same type of article which i want to see you hope you like my article.
Facebook customer service 

kunti bilwal said...

hi I am kunti
I read your article it's very nice and I very happy to see your article.I Want to read your blog every time when i open this and your information is truly good i loved it i have same type of facebook tech support if you need any help this article is useful to you. and once again your article is too good.
facebook tech support 

Ipsita Dihudi said...

Hi, I am Ipsita. I am very happy to read your article. Your article is very good. This article is an important information for me. If you have some time please read my article and suggest me how can I improve my article. And thank you for priceless information. Visit this site:

Nina Athena said...

Thank you for sharing your thoughts and knowledge on this topic. This is really helpful and informative, as this gave me more insight to create more ideas and solutions for my plan. I would love to see more updates from you.

Blackburn Accountant

Nina Athena said...

Thank you for sharing your thoughts and knowledge on this topic. This is really helpful and informative, as this gave me more insight to create more ideas and solutions for my plan. I would love to see more updates from you.

Blackburn Accountant

robert williams said...

Thanks a lot for publishing this post. Hotmail is used for transfer of emails to other email accounts. Sometimes if any user faces a bug in their account then our Hotmail customer service is always ready for the help. They can detect the issues and provides you with the best help.


Great post, thanks for sharing.
Yahoo is most famous email service provider and we provide to technical support for Yahoo users. If you are using Yahoo mail account and then face any error like recover yahoo password, change yahoo password and login issues, do not worry and simply contact Yahoo technical support number.

Marilynruth said...

If you need any Microsoft technical Support or non-technical experts you can contact us at 24*7. We will help you to solve all the queries and issues which you are having while using Microsoft product.
Microsoft tech support number

Aliva Smith said...

HP customer service number and HP laptop support phone number which is a toll-free number that can be used by users at any time of any day to get instant and effective responses from technical support service providers.

AOL Desktop Gold is an extended shape of AOL which offers you pace as well as reliability. AOL computing device Gold is all-in-one and clean to use desktop with remarkable features like browsing, looking, content and email. AOL desktop Gold also includes the top rate safety capabilities which let you to relaxed your AOL account from unauthorized get right of entry to and being hacked. Your AOL Desktop Gold will have computerized updates that allows you to shop the distance and time with the aid of replacing the antique version with a brand new one automatically. Installation manner can be elaborate, however if so you need not to worry approximately whatever as you may name on AOL Desktop Gold Support Number 1-800-329-1530 for customer service.
AOL Desktop Gold Support Number

Amelia said...

Nice post thanks for sharing with us
Download AOL Desktop Gold | Download AOL Gold | Install AOL Desktop Gold | Install AOL Gold | Download AOL Desktop Gold Software | AOL Gold Download Link | AOL Desktop Gold Download | AOL Desktop Gold Software | Reinstall AOL Desktop Gold | Download AOL Gold Software | Update AOL Gold | Install AOL Desktop Gold Software | Install AOL Gold Software | Download AOL Desktop Gold | AOL Desktop Gold support number | AOL Desktop Gold Technical support | AOL Desktop Gold customer support | AOL Desktop Gold Login | AOL Gold Sign in | Download AOL Desktop Gold for windows 10 | Latest AOL gold software | AOL desktop gold | Free AOL Gold Desktop 9.7 Download | Download AOL Gold 9.7 Desktop | AOL Gold | AOL Gold Support Number | install aol gold desktop on mac os x | AOL gold login | AOL gold upgrade | AOL desktop gold for mac

If you have any issue for a Divorce case. So, You can connect with the Highly experienced legal team by making a call divorce lawyer in Delhi. we provide immediate help and legal solution for a divorce case.

Divorce Specialist Lawyer In Delhi

Divorce Settlement Lawyer

Child Custody Lawyer in Delhi

Divorce Law Firms in Delhi

Divorce Specialist Lawyer in Delhi

AT&T email toll-free number, If you are facing any issue with AT&T account then we provide complete technical support for you. We try to achieve complete customer satisfaction. Our AT&T customer service phone number team is available 24/7

Aliva Smith said...

Great post.
Dial HP printer support to instantly connect with the HP printer technical support and get rid of your issues with the help of certified experts. You may ask for HP printer support phone number if you require.

Hazelzoey said...

Dell Customer Support Number 1-800-329-4530. Here, you will provide instant resolutions with a vision and mission to ease technology related issues.

Unknown said...

Hello, dear
My friend tells me about this blog. There is a lot of good information on this blog, I loved reading it and I think people will get a lot of support from this (AOL Support Phone Number) blog. I really like it features from this too. I hope you like this blog. I hope you got a lot of help from this blog.

Sarah Wilson said...

Nice Post thanks for sharing with us.... If you have any query related Apple device so contact Apple customer care number
Reset Apple ID Password | Apple ID Password Reset | Reset apple password | Apple Password Reset | Forgot Apple ID Password | Recover Apple Password | Change Apple Id Password | Apple ID Password Recovery | I forgot my apple id password | Apple ID Support | if you forgot your apple id password | apple id disabled | how to find my apple id? | lost apple id password and recovery key | Reset Apple ID | Lost Apple ID | I forgot my Apple password how can i get it back | How to recover your Apple ID password | forgot my apple id | Not Remember an Apple ID | Apple Id Not Working | How To Reset Apple Id Password | how to change apple id password | Recover Apple id password

Unknown said...

this post is very informative and use full for all businessman. SG Accountants Ilford
Accountants near me

Post a Comment

About Me

My Photo
Management Consultant.
Financial management and business management specialist.
View my complete profile


WELCOME ALL.....................................................,

If you have any problems regarding accounting please comment in this site and let we know SURELLY WE ANSWERED...................................,