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