Cost Accounting Systems & Cost Classification

Introduction

In this section, we shall be turning our attention to the use of accounting reports and analyses to aid internal management purposes. We shall first have to establish an understanding of the terms and classification systems used in recording 'internal' transactions, and the ways in which the cost accounting system 'attaches' costs to specific 'cost objectives' such as products or projects.

We shall then turn our attention to the use of accounting information in rational economic decision models looking at both short-term operational decisions, and long-term investment decisions.

For these models economic forecasts will be required that are not provided by the standard accounting transaction recording system and have to be based on ad hoc analysis of the specific decision situation.

We shall then go on to look at the ways in which accounting information is used within the managerial hierarchy to formally delegate control over economic resources within the organisation, and the accountability systems that are used to plan, co-ordinate, monitor and regulate the use of those delegated economic resources.

Throughout this section we shall take note of the historical origins of the accounting techniques described and consider their assumptions and limitations.