StudentShare solutions
Triangle menu

Cost Accounting Methods - Essay Example

Nobody downloaded yet
The aim is always to get the edge on the competition, getting ahead in the market in terms of product costing, design and packaging, quality and availability. However, improving the efficiency of manpower and machine while reducing cost and without sacrificing customer value is one important point in cost accounting that makes review of a company's financial profile as delicate and argumentative between departments as ever.
Historical Cost Accounting is the traditional cost accounting method wherein the assets are being valued at their original cost less their accumulated depreciation. Herein the revenues, expenditure and asset acquisition / disposition are being recorded according to their actual value or amount received and paid to complete the transaction. It allocates a company's fixed cost in a certain period to the cost of items produced during that period and records their result as total production cost.
Example: I purchased a 100 sqm lot for $5k per sqm in 1995, however its value has appreciated to $20k per sqm in 2006. The amount of the lot or the book value of the asset that will be recorded in the books is still in the value of $5k per sqm.
Advantages: This will let us record the book value as to its historical cost or actual value and thereby make our books consistent as to the assignment of values with regards to our company's assets. The value is reliable and is not bias.
Disadvantages: This will tend to hide the current market value of the property or asset as defined.

B. Historical cost does not record the fair market value of the property and thereby there is no realization of income present from the actual cost to the present market value difference.
Disadvantages: From the example above, an income realization of $20k less $5k can be determined if present market value is used. However, it is being denied in simplicity and in its form.

C. Historical cost principle is simply the opposite of the current cost accounting principle. In historical cost accounting, the values were recorded and entered as to its value in history or the value at the time of purchase and acquisition while in current cost accounting, the value of the assets were recorded as to the time it was being booked or the statements were being generated and prepared.
Disadvantages: This is simply made to elaborate the big difference in cost settings when an asset is being acquired years ago and when the asset is being valued as to its present market or appraised value or its value at the time of the preparation of the financial statements. Historical cost simply does not recognize the present market value of the acquired assets.
Value of asset in 1995 is $5k per sqm.
Value of asset in 2006 is $20k per sqm. (present true market value)

D. Considering the depreciation and the appreciation of a property, it ignores the fact that the value of a property could very well rise up or go lower on its time of operations.
Disadvantages: The concentration is mainly in cost allocations and not in the value of the ...Show more


Cost accounting is the method used by entrepreneurs to monitor cost in order to quantify and qualify decision making process in running their respective businesses. Variable cost normally details the expenses classifications like labor, raw materials, electricity, and all other cost that tends to vary with regards to amount and usage…
Author : aimeereynolds
Cost Accounting Methods
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Cost Accounting Methods"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Cost Accounting Approaches
When implementing the ABC system, costs are allocated to specific activities in operating a business such as planning, engineering, or manufacturing of products. With ABC, costs are assumed to be are variable and that managers tend to overlook the increasing fixed costs because they feel they do not need to monitor them.
4 pages (1000 words) Essay
Inadequacies of the traditional historic cost accounting method in times of changing price levels and the alternative methods
However criticisms exist as the method seems to be doubtful particularly when demands in the market vary (Bailey, Harte and Sugden 2002). The present study discusses on the inadequacies of the traditional historic cost accounting method during times of changes in the price levels and learns about the alternative methods available.
3 pages (750 words) Essay
Cost Accounting
Cost Accounting 1. Absorption and Marginal costing This paper will critically evaluate the costing method used by different management systems by assessing their convenience in terms of advantages and their shortfalls. The common costing methods used in cost accounting include absorption costing and marginal costing.
10 pages (2500 words) Essay
Cost Accounting Proposal
Considering that this is an online business unit of a merchandising company, the cost classifications need to be delineated. First, researchers note that a merchandising firm has only one inventory account, representing the merchandise that it buys and sells (Lewis, 1993).
2 pages (500 words) Essay
Cost and Management Accounting
ded carbonates through effective sustainability process designs.. The Group has made significant investment across its procurement, production and quality control, customer management, category marketing and distribution functions with the aim of being able to deliver a high quality product at any time or place of customer interest.
7 pages (1750 words) Essay
Managment and Cost Accounting
Currently, the entity has not classified miscellaneous costs such as royalties and packaging costs under appropriate heads such as variable overheads, direct material, etc., rather direct material and overheads are included in
8 pages (2000 words) Essay
Why is cost accounting so important to the success of the firm What are the various methods of cost accounting and how are they used How does an operating budget work to discipline a firms management What are the elements of a budget How are budget
Cost accounting is one of important disciplines in accounting with the intended purpose of providing timely and accurate information to the managers for making more rational and prudent decisions. It not provides
8 pages (2000 words) Essay
Cost Accounting
Separate costs are incurred in every process and they are recorded as per that. The raw material has to undergo many sub processes for manufacturing the steel. Steel is made of two elements namely iron and carbon. Stainless steel contains 1.2%
8 pages (2000 words) Essay
Financial crises and Fair Value Accounting (Historical cost,deprival value and replacement cost)
But after the financial crisis, the opponents of the Fair Value Accounting method pointed out that the fair value accounting method was one of the main factors which intensely fuelled the financial crisis. On the
9 pages (2250 words) Essay
Equity and Cost Methods in Accounting
One also has to subtract Dividends, as they are returns on investment. That gives the investment a new value. Under the cost method, the value of the investment remains constant, as the dividends and income do not affect that value.
1 pages (250 words) Essay
Comments (0)
Click to create a comment
Let us find you another Essay on topic Cost Accounting Methods for FREE!
Contact us:
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
Join us:
Contact Us