Since accounting began to be understood as a planning and control tool, new methodologies have been created to cover the growing demand for information in order to anticipate simple historical economic facts.
A historical approach
The implementation of cost systems was initially based solely on the expenditures made by people, it is believed that in ancient times, Middle Eastern civilizations took the first steps in managing costs.
In the earliest industries known as vineyard production, book printing, and steel mills, procedures were applied that resembled a cost system and mediated in part the use of resources for the production of goods.
In some industries in various European countries between the years 1485 and 1509 rudimentary cost systems began to be used that bear some similarity to current cost systems.
According to studies it is said that some books were kept where the costs for the treatment of products were recorded, these books compiled the memories of the production and could be considered as the current cost manuals.
In Italy, it is thought, the " bookkeeping " arose by the double entry method, since as this is a region with a lot of commercial influence, so the first accounting texts were written for merchants since the manufacturing process was in the hands of a few artisans linked to associations and therefore subject to the rules of their guilds.
With crafts, accounting boomed due to the growth of capitalists and the increase in private land. This raised the need for control over the raw materials assigned to the artisan, who occupied his workplace.
As the market grew and the forms of production grew, the use of accounting as a method of measuring the profits of merchants, producers, manufacturers and all those who had to do with mercantilism increased, for example in England, calculation became indispensable of costs, due to the competition existing between the wool producers of the cities and the villages at the end of the 14th century.
In 1,557 winemakers began to use something they called "Production Costs", understanding as such what today would be materials and labor. French publisher Christopher Plantin established in Antwerp in the 16th century, used different accounts for various kinds of imported papers and others for book printing. It is also claimed that its accounting records included an account for each book in print until the costs were transferred to another inventory account for sale.
The objective of accounting at that time was to render a report of accounts without differentiating between income and costs without contributing to the setting of sales prices or determining the net result of operations.
During the sixteenth century and until the middle of the seventeenth century, cost accounting experienced a serious recess.
The rise of costs
In 1776 the rise of the industrial revolution brought the great factories. It went from artisanal to industrial production, creating the need to exercise greater control over materials and labor and over the new element of cost that machines and equipment originated. The "machinism" of the industrial revolution caused the displacement of labor and the disappearance of small artisans. All of the above growth created an environment conducive to further development of cost accounting.
In 1777 a first description of production costs by processes was made based on a company that manufactured linen yarn stockings. It showed how the cost of the finished product can be calculated by means of a series of accounts for double entry that took in quantities and values for each stage of the production process.
In the last three decades of the 19th century, England was the country that was mostly concerned with theorizing about costs.
In 1,778, the auxiliary books began to be used in all the elements that had an impact on the cost of the products, such as salaries, work materials and delivery dates. As a result of the development of the chemical industry, the appearance of the joint cost concept in 1800, although the Industrial revolution originated in England, France was initially more concerned with promoting cost accounting. A sample was given by Mr. ANSELMO PAYEN who was the first to incorporate for the first time the concepts of depreciation, rent and interest in a cost system.
A French glassmaker M. GORDARD published an industrial accounting treaty in 1827 highlighting the need to determine the price of raw materials compared at different prices.
Consolidation of cost systems
In the last three decades of the 19th century, England was the country that mostly dealt with theorizing about costs. This is how, between 1828 and 1839, CARLOS BABBGE published a book highlighting the need for factories to establish an accounting department that is in charge of monitoring compliance with working hours. In the late 19th century, author HENRY METCALFE published his first book, which he called manufacturing costs.
The greatest development of cost accounting took place between 1890 and 1915. In this period, the basic structure of cost accounting was designed and cost records were integrated into general accounts in countries such as England and the United States, and contributed concepts such as: Establishment of procedures for the distribution of indirect manufacturing costs, adaptation of reports and records for internal and external users, valuation of inventories and estimation of costs of materials and labor.
Until now, cost accounting exercised control over production costs and recorded its information based on historical data, but when general accounting and cost accounting were integrated between 1900 and 1910, it became dependent on the former.
But accounting was beginning to be understood as a planning tool which demanded the need to create ways to anticipate simple historical economic facts, the result of the emergence of predetermined costs between 1920 and 1930 when the American Frederick W. Taylor began to experience standard costs at the steel company BETHLEHEM STEEL CO.
There is evidence to confirm that the predetermined costs were used in 1928 by the American company WESTINGHOUSE before being spread by large companies in the American union. These costs made it possible to have data before starting production, then comes the depression of the 1930s, during which industrialized countries had to make considerable efforts to protect their capital.
A new vision of costs
After the great depression, great preponderance begins to be given to different cost systems and budgets as a key tool in the direction of organizations. Among the reasons that evidenced the new boom in cost accounting were:
- The development of the railways The value of the fixed assets used by the companies that gave rise to the need to control indirect costs The size and complexity of the companies and therefore the administrative difficulties they faced The need to have a reliable tool that allow them to set sale prices.
In 1953 the American AC. LITTELTON in view of the growth of fixed assets defined the need to amortize them through consumption rates on manufactured products as indirect costs, in 1955 the concept of comptrollership emerged as a means of controlling the production and financial activities of organizations and a lustrum later, the concept of administrative accounting as a tool for the analysis of manufacturing costs and as a basic instrument for the decision-making process.
Until before 1980, industrial companies considered their cost accumulation procedures to be industrial secrets since the financial information system did not include cost accounting databases and files.
Unquestionably, this translated into stagnation for cost accounting in relation to other branches of notability, until it was found that its application produced benefits. This was how in 1981 the American HT. JHONSON highlighted the importance of cost accounting and cost systems as a key tool to provide management information on production, which implied existence of useful cost files for setting adequate prices in competitive markets.
This is how the current costing systems have emerged, and the more the organizational system and the production systems advance and change, new methodologies and tools for measuring and controlling costs will be implemented.
