MOSHI CO-OPERATIVE UNIVERSITY
(MOCU)
FACULTY: FUCULTY OF BUSINESS AND INFORMATION SCIENCES
PROGRAMME: BACHELOR OF ACCOUNTING AND FINANCE
COURSE ANTE: BAF 204
COURSE NAME: COST ACCOUNTING
INSTRUCTOR: MR. BASILIO M.
REGISTRATION NUMBER: MoCU/BAF/1543/21
STUDENT NAME: STEVEN HENRY LUSINDE
TASK: INDIVIDUAL ASSIGNMENT
SUBMISSION DATE: 18TH NOVEMBER 2022
Question;
1. Define cost coding
2. Explain various types of cost coding systems
3. State the importance of cost coding
The meaning of cost coding
Cost refers to the any resource that incurred or sacrified in order to achieve a certain goals.
Code is a system of symbol designed to be applied to a classified set of items to give a brief
reference, facilitating entry, collation and analysis
Cost coding is the symbols applied to sets of cost items (which may be cost elements,
products ,cost centers), giving a brief, accurate and logical reference, which facilitates entry,
collation and analysis of items in the accounts to meet information requirements. The basis of
any cost coding formed by cost classification
Types of cost coding systems
1. Sequence codes
The sequence coding is a simple method of coding data. A sequential code follows an
alphabetical or numerical sequence. For example for the item, the code could be 1, I or A, for
the next 2, ii, or B and so on. Although simple,, sequence coding may not be suitable for all
purpose such as sales product.
2. Block codes
The block coding system modification of the sequence coding system. In the block coding
system, there different sequence for each group of items. It usually forms the basis for a chart
of accounts.
3. Digital codes
Digital coding is also very simple method of coding items in accordance with their
characteristics and description.
It may be numerical, alphabetical or alphanumerical.
4. Faceted codes
It is useful when an item can be classified in more than one way. When there are number of
sections and groups/subgroup, the faceted coding system can be used to represent their
distinguishing features. A faceted code is one that broken down into a number of faceted or
fields, each of which signifies a units of information.
5. Hierarchical codes
Hierarchical codes are used when there is interrelationship between the items. The coding
systems used by libraries, such as Decimal system, are examples of hierarchical codes. The
advantage of such a system is that it is infinitely expandable in logical, structured, way
6. Mnemonic coding
Mnemonic means something that helps the memory. Mnemonic codes gives visible hints
concerning the products they represents. Often, it derived from the description of the product.
A good example of a mnemonic code is three character codes used to designated international
airports:
London Heathrow LHR
Hong Kong HKG
Importance of cost coding.
1. Coding process make easy to determine if two items codes can be billed together, with
or without a modifier.
2. It help to accurate the cost accounted, nowadays in most organization both income and
expenditure are coded before they are incorporated in accounting records.
3. In accounting both credit and cash transaction, it advisable to code every item in order
to identify it.
4. Coded items can be easy classified in to relevant groups for the purpose of recording
and processing data.
5. Codes are generally used by a company names or a person name.
The following are some basic benefits of coding items:
• It saves data entry and processing time because codes are shorter than lengthy
descriptions.
• It saves storage place in computer
• It easy to identify.
• It easy to classify.
• It easy to analyze.
References
Principles of Cost Accounting and Procurement (T06). The National Board of Accountants and
Auditors (NBAA).
