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What is Cost Accounting?

This can be described as the process ofIn the early industrial age, most of the
accumulating, measuring, analyzing,costs incurred by a business were what modern
interpreting and reporting cost informationaccountants call "variable costs" because
that is both useful and relevant to thethey varied directly with the amount of
internal and external stakeholders of aproduction. Money was spent on labour, raw
business entity. External stakeholders arematerials, power to run a factory, etc. in
those who have a vested financial interest indirect proportion to production. Managers
a business or company. For example bankscould simply total the variable costs for a
(loans), financial houses (mortgages),product and use this as a rough guide for
investors (investments), etc. Internaldecision-making.
stakeholders are the business or company
directors,  managers,  division  heads,  etc.Some costs tend to remain the same even
during busy periods, unlike variable costs
One of the many benefits of cost accountingwhich rise and fall with volume of work. Over
is that it turns data into information,time, the importance of these "fixed costs"
knowledge and wisdom about a businesshas become more important to managers.
entity's  operations  that  is  useful  for:Examples of fixed costs include the
depreciation of plant and equipment, and the
-  measuring  performancecost of departments such as maintenance,
tooling, production control, purchasing,
-  reducing  or  managing  costsquality control, storage and handling, plant
supervision and engineering. In the early
- determining the fees or prices for goodstwentieth century, these costs were of little
and  servicesimportance to most businesses. However, in
the twenty-first century, these costs are
- deciding to authorize, modify oroften more important than the variable cost
discontinue a program or activity Anotherof a product, and allocating them to a broad
benefit is that information on the costsrange of products can lead to bad decision
programs and activities may be used as amaking.
basis to estimate future costs in preparing
and reviewing budget requests. Once budgetsIn modern accounting, costs are measured in
are approved and executed, cost informationaccordance with Generally Accepted Accounting
serves as a useful feedback on performance.Principles (GAAP). In accordance to GAAP the
Moreover, costs may be compared to known orprinciple is to record historical events and
assumed benefits to identify value-added andassign a monetary value to each event that
non-value added activities. Reliablehas taken place. Costs are measured in units
information on the cost of programs andof currency by convention. Cost accounting
activities is crucial for the effectivecould also be defined as a kind of management
management of a business entity's operations.accounting that translates the Supply Chain
Cost accounting is especially important for(the series of events in the production
fulfilling the objective of assessingprocess that, in concert, result in a
operational performance. The objective is toproduct)  into  financial  values.
improve the efficiency and effectiveness of
operations by furnishing program managers andIn conclusion, for any business entity - from
others with timely and relevant cost-basedthe smallest business enterprise to the
performance information to allow forlargest multinational corporation - to be
continuous improvement in delivering outputssuccessful requires the use of cost
and outcomes to stakeholders. Cost accountingaccounting concepts and practices. It
has been with us since early times to helpprovides key data to managers for planning
managers understand the costs of running aand controlling, as well as costing products,
business. Modern cost accounting originatedservices, and customers. The central focus is
during the industrial revolution, when thehow it could help managers make better
complexities of running a large scaledecisions. For this reason businesses and
business led to the development of systemscompanies hire cost accountants and they are
for recording and tracking costs to helpincreasingly becoming integral members of
business  owners and managers make decisions.decision-making teams instead of just data
providers.



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