Cost accumulation is the collection of cost data in an organized way via an accounting system. The word system implies regularity-for example, the routine compilation of historical data in an orderly fashion. Other cost data may be gathered on occasion as desired (for example, replacement costs of certain equipment). Of course, continuous compilation is more expensive than occasional compilation; the relative elaborateness of systems is fundamentally a cost-benefit decision as to what data to "buy" on a regular basis.
Cost objectives are chosen not for their own sake but to facilitate decisions. The most economically feasible approach to the design of a cost system is typically to assume some comrnon classes of decisions (for example, inventory control and labor control) and to choose cost objectives (for example, products and departments) that relate to those decisions, Nearly all systems at least accumulate actual costs, which are amounts determined on the basis of costs incurred (historical costs), as distinguished from predicted or forecasted costs. The relationships are exemplified as in the chart on the next posting.
Years ago many cost accounting systems emphasized one cost objective-product costing for inventory valuation and income determination-as if it were an end in itself. Consequently, many systems failed to collect the data in a form suitable for other purposes. However, modern systems have a more balanced approach; obtaining the inventory cost of finished product units is regarded as only one purpose. Other purposes include getting a reliable basis for predicting the economic consequences of a host of decisions, including:
- Which products should we make? Delete?
- Should we manufacture a product component or should we acquire it outside?
- What proces should we charge?
- Should we buy the proposed equipment?
- Should we change our manufacturing methods?
- Should we promote this manager?
- Should we expand the department?
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