What is Cost Accounting?
Cost accounting is the process of collecting, analyzing, recording, and reporting costs associated with producing goods or services.
Its purpose is to:
A furniture company wants to know the cost of producing one table.
Cost Accounting helps identify:
Objectives of Cost Accounting
1. Cost Determination
Calculates the cost of:
Helps reduce waste and inefficiency.
3. Cost Reduction
Identifies opportunities to lower expenses.
4. Decision Making
Supports decisions regarding:
Manufacturing costs move through three inventory accounts:
a) Raw Materials
Cost Accounting in Service Organizations
Cost accounting is not limited to manufacturers.
Examples:
Cost accounting is the process of collecting, analyzing, recording, and reporting costs associated with producing goods or services.
Its purpose is to:
- Determine product costs.
- Assist managers in planning.
- Control business operations.
- Support decision-making.
A furniture company wants to know the cost of producing one table.
Cost Accounting helps identify:
- Wood used
- Labor used
- Factory overhead costs
Financial Accounting
Focuses on:
Focuses on:
Acts as a bridge between financial and managerial accounting.
Provides detailed cost information for management decisions.
Focuses on:
- External users
- Investors
- Creditors
- Government agencies
- Income Statement
- Balance Sheet
- Cash Flow Statement
Focuses on:
- Internal users
- Managers
- Planning
- Controlling
- Decision-making
Acts as a bridge between financial and managerial accounting.
Provides detailed cost information for management decisions.
Objectives of Cost Accounting
1. Cost Determination
Calculates the cost of:
- Products
- Services
- Projects
Helps reduce waste and inefficiency.
3. Cost Reduction
Identifies opportunities to lower expenses.
4. Decision Making
Supports decisions regarding:
- Pricing
- Outsourcing
- Expansion
- Product mix
Manufacturing costs move through three inventory accounts:
a) Raw Materials
- Materials waiting to be used.
- Work in Process (WIP)
- Finished Goods
Cost Accounting in Service Organizations
Cost accounting is not limited to manufacturers.
Examples:
- Hospitals
- Universities
- Airlines
- Banks
- Cost = Sacrifice of resources
- Expense = Cost consumed to generate revenue
- Product = Cost Cost attached to inventory
- Period = Cost Cost charged to current period
- Cost Object = Anything for which cost is measured
