NOTES OF COAST ACCOUNTING

er studying this chapter, you should be able to: 
•     Define cost accounting
•     Distinguish between cost accounting and other accounting subjects such as financial 
accounting and management accounting based on various aspects
•     Define the various cost accounting terminologies
•     Explain the role of a cost accounting department in an organization 
•     Explain the design and operation of a Cost and Management Accounting system
•     Explain the relationship between nature of business enterprise and cost accounting
•     Distinguish between qualitative and quantitative information
•     Explain the features of an effective cost center framework
INTRODUCTION
The purpose of this chapter is to introduce the basic concepts of cost accounting, terminologies 
and distinguish cost accounting from financial accounting. It is aimed at making it clear on what 
cost accounting is all about and introduce some of the terminologies used in the chapters that 
follow.
First, we will discuss the nature of cost accounting and budgeting and then introduce the key cost 
accounting terminologies, which will act as the base for other discussions.
DEFINITION OF KEY TERMS
Cost: Cost is simply a quantification or measurement of the economic sacrifice made to achieve 
a given objective. It is, therefore, a measurement of the amount of resources sacrificed in attaining 
a specified goal
Cost object or cost unit: This is an activity for which a separate measure of cost is desired.
Cost Accountant: He/she is a member of the accounting department responsible for collecting 
product costs and preparing accurate and timely reports to evaluate and control company 
operations.
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4 COST ACCOUNTING
STUDY TEXT
Cost Analysis: This is an activity that uses engineering, time and motion studies, timekeeper’s 
records and planning schedules from production supervisors.
Cost center: This may be defined as any point at which costs are gathered in order to control 
cost, fix responsibility and enable costs to be recharged on an equitable basis
EXAM CONTEXT
You must be prepared to answer questions touching on definition of cost accounting terminologies 
and distinguish cost accounting from other disciplines of accounting such as management and 
tax accounting. Questions normally set from this section are theoretical and thus you need to 
understand the theory to be able to answer them well.
INDUSTRY CONTEXT
The applicability of this topic comes in handy when holding discussions with other managers in 
a firm or during meetings. You need to understand the cost accounting terminologies and how 
it relates to other disciplines for effective relay of the messages intended for managers of other 
fields.
 DEFINITION OF COST ACCOUNTING
In gen