Use of the term ‘economic cost’ may be contrasted with use of the term

‘accounting cost’.The term ‘cost’ is used in different contexts (and by different individuals) with different meanings. It is therefore useful to distinguish the accountant’s use of the term from the economist’s use.

Accountants are concerned primarily with the proper recording and measuring of historical costs based on a uniform set of rules. They have developed a comprehensive system of recording and reporting data about costs, which is used by managers, investors, regulators and economists in carrying out their respective jobs.The data recorded in the books and records of a firm are referred to as ‘accounting’ or ‘embedded’ costs. Accountants have also developed various internal cost accounting rules concerning how costs should be allocated to various categories.

Economists, on the other hand, have developed a comprehensive set of theories concerning cost, which they use to describe, explain and predict the behaviour of firms and individuals (e.g. consumers).The field of economics thus provides the underlying theory of costs whereas accounting generally supplies most of the data that allow this theory to be applied in practice.
Whereas embedded costs—the accountant’s measure of cost—are quite practical, readily available and fairly consistent from firm to firm, the economist’s idea of cost is more useful in analysing the critical decisions made by management and government.
(Source: based heavily on text from Ben Johnson and Associates Inc. economic research and analysis; www.microeconomics.com/essays/cost_def/cost_def.htm)
a What is the difference between an accountant’s cost and an economist’s cost?
b How do financial accounting costs and management accounting costs differ?
c Do accountants and economists have different views of environmental cost?