COST CLASSIFICATION ASSIGNMENT
To classify the various costs would first of all require a definition between the two types of
accounting that practically all businesses have to face and a number of key terms which are
equally important. These are management accounting and financial accounting.
1. THE DIFFERENCE BETWEEN MANAGEMENT & FINANCIAL ACCOUNTING:
Management accounting is concerned with decision making, cost apportionment, planning
and control. It is based within the organisation and is solely for the use of the managers to
conduct their business dealings. The process of management accounting is proactive
meaning the company is looking ahead, not backwards.
Financial accounting on the other hand is externally based and is primarily concerned with
the preparation of financial statements for organisations stakeholders. Stakeholders would
include shareholders and competitors. Unlike management accounting it has to comply
with various financial legislations and standards. Financial accounting concerns using data
from previous years which also means that the information which is used is generally out
of date.
2. HOW ARE ALL THE COSTS CLASSIFIED?
To classify costs would require a number of key terms to be defined; all of which should
be understood fully in the concept of management accounting. These are fixed / variable
costs, incremental / controllable costs, direct / indirect costs and future / past costs.
Fixed costs are costs which do not change as the level of productivity increases. An