This paper analyses project cost management and cost accounting concepts. Project cost management is the process of estimation, budgeting, and control of costs throughout the life cycle of a project. It aims at keeping the expenditure of the project within the budget and ensures the accomplishment of project goals and objectives. The preparation of a budget is essential in project cost management. It helps in the determination of crucial decision points. Cost accounting is a form of managerial accounting that captures the total cost of production by assessment of the cost of each step of a project. Most managerial decisions in business apply the cost accounting concept.
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ESSENTIAL STEPS IN PROJECT COST MANAGEMENT
Project cost management involves four essential steps. Project resource planning is the process of identification of resources required to execute the project. It is done at the beginning of a project before work begins. Cost estimation follows whereby a project manager quantifies the cost associated with resources required to attain the goals and objectives. This step includes information like resource requirement, price of each resource, past project cost, and potential risks. Cost budgeting involves the allocation of cost to different parts of the project. Cost control follows which involves measuring cost variance from the baseline and application of appropriate action. This step uses the cost accounting concepts to amend the budget allocated and the scope.
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THE PRINCIPLES OF COST ACCOUNTING CONCEPTS
Cost accounting concepts have the following principles. It focuses on a particular product, activity, or project. This principle helps in the collection of all costs that fall within a certain category. It, therefore, helps stay within the allocated budget. Cost accounting designates costs as either direct or overhead. Direct costs include labor and material. Overhead costs include general management, human resources, and facilities. It also ensures the use of cost accounting methodology to the costs are within a limit. This helps in project cost management. It also eliminates unnecessary costs by breaking down the total cost into individual items. For effective achievement of the project goals and objectives, cost accounting saves additional costs that paralyze a project.
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