Chapter quiz and answer of nature and purpose of cost accounting

Cost/Management Accounting notes

1. State two definitions of cost accounting.

2. Highlight the various distinctions between cost accounting and financial accounting

3. Distinguish between qualitative and quantitative information.

4. Highlight the areas in which cost accounting may be useful in an organization

5. Define a cost center

1. Some of the definitions include.

“That part of management accounting which establishes budgets and standard costs and actual costs of operations, processes, departments or products and the analysis of variances, profitability or social use of funds” (Chartered Institute of Management Accountants – CIMA)”

“That which identities, defines, measures, reports and analyses the various elements of direct and indirect costs associated with producing and marketing goods and services. Cost accounting also measures performance, product quality and productivity” (Letricia Gayle Rayburn)”

“A systematic process of collecting, summarizing and recording data regarding the various resources and activities in a firm so as to calculate the basis of production costs used in financial accounting or making other relevant decisions in a firm (Horngren C.T)

2. Differences between cost accounting and financial accounting can be summarized under the following:
• Restriction by GAAP
• Statutory requirement
• Focus on segments of the organization
• Emphasis on non-monetary measure
• Futuristic versus historical accounting
• Precision and accuracy of information provided
• Intended use
• Pertinent qualities of information generated from the system

3. Quantitative is that which may be measured in monetary terms or other physical units e.g. material may be expressed as Shs.1000 or 250 kilos. It is easily objectively expressed. Qualitative information is that information that cannot be objectively expressed

4. Areas where cost accounting may be useful in an organization include product pricing, sensitivity analysis, analysis of performance, and production planning and decision- making.

5. A cost center is any point at which costs are gathered in order to control cost, fix responsibility and enable costs to be recharged on an equitable basis.

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