Cost and Optimization in Government

By Aman Khan | Go to book overview

Chapter 4
Cost Accounting

Cost accounting is the universal language of an organization. There is not a single organization anywhere that does not understand or is not concerned about costs. As organizations become complex, requiring more diverse and intelligent information to survive, the need for cost accounting becomes even more important. The primary objective of cost accounting is to provide cost and related information that is essential for an organization to determine how to run its internal operations; in particular, how to allocate its costs, how to control them, and what measures to take to improve its cost performance. In government, where efficiency and accountability have always been a concern, cost accounting can fill an important gap by producing this critical information to help overcome that concern.

This chapter presents several topics that, according to conventional wisdom, constitute the essence of cost accounting. They are: job costing, process costing, variable costing, cost allocation, and cost control. Somewhat more specific than those discussed in the previous chapters, they provide the nuts and bolts of accounting for costs in an organization. The chapter begins with a brief background discussion on cost accounting and the system that underlies it before presenting these topics in details.


BACKGROUND DISCUSSION

Cost accounting deals with the costs an organization incurs in carrying out its normal, everyday activities and the process of accounting for those costs. The process is complex, involving a number of distinct, fairly-detailed, and well-defined activities. These activities primarily include recording, analyzing, summarizing, evaluating, and interpreting costs and related information and communicating (reporting) the results to those who would directly benefit from them. In government, this would mostly include the chief administrator, elected officials, various agency heads, internal

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