What is Cost Accounting ?

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Cost accounting comes down to two words – “cost” and “accounting”. First, let’s understand what “cost” is. Then we will look at “accounting”.

Cost is an expense incurred by a particular unit. In another way, the cost is what the business sacrifices in order to produce one unit of product.

Accounting is the art and science of recording, classifying, summarizing, and analyzing inputs to make a sense of the information related to financial, management, or cost.

Cost accounting is the art and science of recording, classifying, summarizing, and analyzing costs to help management make prudent business decisions.

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Cost control: The first function of cost accounting is to control the cost within the budgetary constraints management has set for a particular product or service. This is important since management allocates limited resources to particular projects or production processes.

Cost computation: This is the main function of cost accounting and this is the source of all other functions of cost accounting. In the section below, we will see how we can calculate the cost of sales per unit for a particular product.

Cost reduction: Cost computation helps the company reduce costs on projects and processes. Reduction in costs means more profits since the margin will naturally increase.

Cost accounting assists management by providing analysis of cost behavior, cost-volume-profit relationships, operational and capital budgeting, standard costing, variance analyses for costs and revenues, transfer pricing, activity-based costing, and more.

Direct costs are directly involved in producing goods. That means direct costs can be directly identified as being used in the production of goods. For example, we can talk about direct material and direct labor that is used in producing goods. These costs we can identify as direct costs.

Cost accounting is the process of recording, classifying, analyzing, summarizing, and allocating costs associated with a process, and then developing various courses of action to control the costs. Its goal is to advise the management on how to optimize business practices and processes based on cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future

Cost accounting had its roots in manufacturing businesses, but today it extends to service businesses. For example, a bank will use cost accounting to determine the cost of processing a customer's check and/or a deposit. This in turn may provide management with guidance in the pricing of these services.

Cost accounting information is commonly used in financial accounting information, but its primary function is for use by managers to facilitate making decisions.

All types of businesses, whether service, manufacturing or trading, require cost accounting to track their activities.[1] Cost accounting has long been used to help managers understand the costs of running a business

Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs to help business owners and managers make decisions.

A method of accounting in which all costs incurred in carrying out an activity or accomplishing a purpose are collected, classified, and recorded. This data is then summarized and analyzed to arrive at a selling price, or to determine where savings are possible.

In contrast to financial accounting (which considers money as the measure of economic performance) cost accounting considers money as the economic factor of production.

The cost accounting skills of the certified public accountant were demonstrated when he analyzed our inventory despite our lack of records.

It may be easier to use a cost accounting strategy for certain projects to figure out what your bottom line really is.

Depending on the type of business you run it may be easier to keep a cost accounting form of records instead of the traditional form.

Cost accounting comes down to two words – “cost” and “accounting”. First, let’s understand what “cost” is. Then we will look at “accounting”.

Cost is an expense incurred by a particular unit. In another way, the cost is what the business sacrifices in order to produce one unit of product.

Accounting is the art and science of recording, classifying, summarizing, and analyzing inputs to make a sense of the information related to financial, management, or cost.

Cost Accounting Definition – Cost accounting is the art and science of recording, classifying, summarizing, and analyzing costs to help management make prudent business decisions.

Cost Accounting is a method of accounting wherein all the costs involved in performing any process, project or product are noted and analyzed. Such analysis helps the management in taking strategic decisions.