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three is about data presentation, analysis and interpretation and finally, thelast chapter four, present summary, conclusion and recommendation. CHAPTER TWOLITERATURE REVIEW 2.1 What is cost Accounting? Cost accounting is the process of accumulating the costs of manufacturing,and other functional processes and identifying these costs with unitsproduced or some other object. It is a unique sub filed of managerial andfinancial accounting. Cost accounting is applied primarily to manufacturing.Organization that combine and process raw material in to finished products.Management accounting is the process of identification measurement,accumulation, analysis, preparation, interpretation, and communication offinancial information used by managements of plane, evaluate, and control
with in an organization to assure appropriate use of and accountability forits resources (Cherrington, 1998, p 5).Cost accounting provides information for management accounting andfinancial accounting management accounting measures and reports aboutfinancial and non financial information that helps managers make decisionsto fulfill the goal of the organization and financial accounting focus onreporting to external parties. (Horngren, 2003, p2-3)Cost accounting provides mangers with relevant cost data to assist them inoperating the business effectively. The management process includesdeveloping an operating plan, implementing the plan, and evaluating theresult of operation (Cherrington, 1998,p54). 2.2 Classification of costs Classification are needed for development of cost data that are usefulmanagement with regard to the following five purposes or aims these are 1. Planning profit by means of budget.2. Controlling cost via responsibility accounting3. Measuring annual or periodic profit including inventory costing4. Assisting in establishing selling price and pricing policy5. Furnishing relevant cost data for analytical processes for decisionmaking. There for cost are classified in to broad category and some of themare listed below. 2.2.1 Cost in their relation to the production. The elements of manufacturing cost are direct material. direct labour, andfactory overhead (indirect manufacturing). Direct material and direct labourcosts are combined in to an other classification called primary cost, anddirect labour and factory over head can be combined in to a classifiedcalled conversion cost. Representing the cost of converting direct materialin to finished products (Frigo, 1986, p 10).
Direct material are all materials that forms and integral part of finishedproduct and that can be included directly in calculating the cost of productclued all to make automobile bodies. The case and feasibility with which thematerial item can be traced to the final product are major consideration intheir designation as direct material. Give and facts to build furniture frompart of the finished product but for costing purposes such item may beclassified as in direct materials for manufacturing cost (Frigo 1986 p 10).