Principles of Cost Accounting - Cost Accounting Assignment Help

The fundamental principles of costing are identical and are given below:

1. Cost is related to its cause: a cost is related is closely as possible to its cause. Rent of the factory for instance cannot be charged to office expenses repairing charges of machine cannot be charged to some other machine and it in the same way a foreman’s salary cannot be charged to one single unit if many more units are produced in a department supervised by that foreman. The reason in all the above cases is that the cost is not related to its cause.

2. Cost is charged after it is incurred: if a cost is not incurred either actually or nationally it is no cost and cannot be charged to a cost centre. For instance a cost unit is not charged with selling costs while it is still under manufacture in the factory as selling costs would occur when the cost unit is finished in the factory and is sold. Similarly normal loss or wastage is to be borne by the units of which it is a loss or wastage. Such a loss is not imposed on those units which are yet to pass the point of loss.

3. Abnormal costs are excluded from costing: a cost the meet loss occasioned by fire riot theft or accident is an abnormal cost. The cost is not charged to production is not related to production part. The presence of abnormal cost is accounting would only disport cost figures and mislead the management for purposes of cost control and decision making. It is therefore the normal cost incidental to production or service that is charged to cost centres but not the abnormal ones.

4. Past costs are not charged to future periods: if certain cost of the past the period having been not charged in full during that past period are taken to a future period for recovery it would be a wrong steps as the future period costs would be unnecessarily over burdened with the load of the past costs and would be liable to be misunderstood. A past cost is one from which no more benefit is to accrue.

5. The concept of conservation has no place in costing: the closing stock is financial accounting is valued at cost price or the market price whichever is less, but in costing, the closing inventory and stocks are valued at cost only. There is a value attached to the concept of conservation in the financial accounting but it is not so in the costing. There is a tendency to show reduced profits in the financial accounting and to create a secret reserve, but this is not so in the costing.

6. Accounting for cost is based on double entry principal: the cost ledgers and other cost control accounts are kept on the double entry principal the same principal who is adopted so exhaustively in financial accounting. Costing, however, requires a greater use of cost sheets and cost statements for the purpose of cost ascertainment, cost control and guidance to management.

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