Cost accounting is a process that records, analyzes, and reports all costs related to producing a product. This allows a company to budget accurately, introduce efficiencies, and maximize profits. There are two basic types of costs - variable costs that fluctuate with production like materials and labor, and fixed costs that are needed for production but do not fluctuate much, such as utilities and rent. Tracking costs enables companies to budget better, improve processes to be more efficient, and increase profits by producing the same output at lower costs.
Cost accounting is a process that records, analyzes, and reports all costs related to producing a product. This allows a company to budget accurately, introduce efficiencies, and maximize profits. There are two basic types of costs - variable costs that fluctuate with production like materials and labor, and fixed costs that are needed for production but do not fluctuate much, such as utilities and rent. Tracking costs enables companies to budget better, improve processes to be more efficient, and increase profits by producing the same output at lower costs.
Cost accounting is a process that records, analyzes, and reports all costs related to producing a product. This allows a company to budget accurately, introduce efficiencies, and maximize profits. There are two basic types of costs - variable costs that fluctuate with production like materials and labor, and fixed costs that are needed for production but do not fluctuate much, such as utilities and rent. Tracking costs enables companies to budget better, improve processes to be more efficient, and increase profits by producing the same output at lower costs.
Cost accounting is a process that records, analyzes, and reports all costs related to producing a product. This allows a company to budget accurately, introduce efficiencies, and maximize profits. There are two basic types of costs - variable costs that fluctuate with production like materials and labor, and fixed costs that are needed for production but do not fluctuate much, such as utilities and rent. Tracking costs enables companies to budget better, improve processes to be more efficient, and increase profits by producing the same output at lower costs.
Cost accounting is a process of recording, analyzing and reporting all of a company’s costs (both variable and fixed) related to the production of a product. This is so that a company’s management can make better financial decisions, introduce efficiencies and budget accurately. The objective of cost accounting is to improve the business’s net profit margins (how much profit each dollar of sales generates). Here’s What We’ll Cover: What Is the Purpose of Cost Accounting? What Are the Two Basic Types of Costs? What Is the Cost Accounting System? What Are the Types of Cost Accounting?
What Is the Purpose of Cost Accounting?
Cost accounting allows for the following: COST ACCOUNTING ALLOWS A COMPANY TO BUDGET When a business has a better idea of exactly how its money is being spent, it can better budget for the future. A company’s accountant is typically already aware of the business’s fixed costs (utilities, rent, property taxes, etc.), but it’s variable costs (such as labor and raw materials) change with output. Those costs need to be tracked and estimated for, for the creation of the next budget. As well, the business will want to know that the money being spent now is being done in ways that help maximize the company’s profit. COST ACCOUNTING ALLOWS A COMPANY TO BE MORE EFFICIENT Typically, an examination of a company’s processes will result in ways to improve them. For instance, maybe a company will discover it doesn’t need a ten-hour shift on a particular machine to produce a product, maybe eight hours will do. Or that assigning three people to a production line has proven too much, as only two are needed. COST ACCOUNTING CAN MEAN MORE PROFIT If a company makes its production processes more efficient, meaning it is producing the same output for less, than it will make more money. What Are the Two Basics Types of Costs? There are two basic types of costs: VARIABLE COSTS These are costs directly related to the production of a product, such as material and labor costs. Often these types of costs fluctuate. FIXED COSTS These are costs not directly related to production, but needed for production to happen, like utilities and rent charges for a production facility. Often these types of prices do not fluctuate, or if they do, they’re not by much.