What is Cost Accounting?

Malcolm Tatum
Malcolm Tatum

Cost accounting is an approach to evaluating the overall costs that are associated with conducting business. Generally based on standard accounting practices, it is one of the tools that managers utilize to determine what type and how much expenses is involved with maintaining the current business model. At the same time, the principles of cost accounting can also be utilized to project changes to these costs in the event that specific changes are implemented.

Cost accounting determines the cost of operating a business.
Cost accounting determines the cost of operating a business.

When it comes to measuring how wisely company resources are being utilized, cost accounting helps to provide the data relevant to the current situation. By identifying production costs and further defining the cost of production by three or more successive business cycles, it is possible to note any trends that indicate a rise in production costs without any appreciable changes or increase in production of goods and services. By using this approach, it is possible to identify the reason for the change, and take steps to contain the situation before bottom line profits are impacted to a greater degree.

Product development and marketing strategies are also informed by the use of cost accounting. In terms of product development, it is possible to determine if a new product can be produced at a reasonable price, considering the cost of raw materials and the labor and equipment necessary to produce a finished product. At the same time, marketing protocols can make use of this type of accounting to project if the product will sell enough units to make production a viable option.

Cost accounting is helpful in making a number of business decisions. By weighing the actual costs versus the anticipated benefit, it can help a company to avoid launching a product with no real market, prevent the purchase of unnecessary goods and services, or alter the current operational model in a manner that will decrease efficiency. Whether utilized to evaluate the status of a department within the company or as a tool to project the feasibility of opening new locations or closing older ones, cost accounting can provide important data that may impact the final decision.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments

anon314301

What is the latest definition of cost accounting?

anon313635

What are the needs and objectives of cost accounting?

anon298009

How does a cost accounting operation relate to transport?

anon282864

In standard accounting, why do we find variances? And how we can get missing figures?

anon261318

How do you write a production statement if you are given the cost sheet?

anon208114

"cost accounting is an approach to evaluating the overall costs that are associated with conducting business."

Required: Empirically investigate the validity or otherwise of the above statement cost accounting, through a study on any two public quoted manufacturing companies in Nigeria?

anon204019

What is engineered cost, committed cost and discretionary cost?

anon201054

"cost accounting is an approach to evaluating the overall costs that are associated with conducting business."

Required: Empirically investigate the validity or otherwise of the above statement cost accounting, through a study on any two public quoted manufacturing companies in nigeria?

Please, I need help here.

anon157913

@ no. seventeen: Basically, the differences are:

Cost Accounting: Trend every individual expense in each line item down to the most minute detail. Calculating annual costs in such detail such as how many and exactly how much per light bulb, each piece of paper, etc.

Management Accounting: Trend out to project year-end income and expenses totals based on current year's information.

Financial Accounting: Debt to equity ratio, return on investment, P/E ratio, earnings per share ratio, etc.

anon133758

thanks for your effort. may God bless the work of your hands.

anon110000

thank you for your wonderful information. It really helps every one to understand cost accounting. Very informative and useful information. --Aditya J.

arsi101

why is there a need for cost classification?

arsi101

how is cost important in the following areas?

1. planning; 2. controlling; 3. income measurement

anon90990

It is said that "cost accounting is a system of foresight and not a postmortem examination; it turns losses into profits, speeds up activities and eliminates wastes." discuss this statement.

anon90748

Great post.

anon89749

its a very good way to read on net. i want to solve my cost accounting problems here. Thank you.

anon88714

it's my first time to log to your site and its very informative. it makes accounting look easier. keep up the good work. you are impacting people who don't easily get books from this side of the world. thank you.

anon87539

What is operation in cost accounting and what is the role of cost accounting in operation?

anon81709

What is cost accounting where is cost accounting used and is there is a format? Please let me know.

cookfood

what is cost accounting and how many methods are there to calculate the cost of any product? Please explain with examples. thanks

cookfood

what is cost accounting, its advantages and disadvantages and its benefits?

anon70168

cost accounting seems to be tedious sometimes. can you explain into detail what is weighted average? and some fact concern cost accounting?

anon69369

what is cost accounting and how many ways are there to calculate the cost of any product?

anon68906

what is cost accounting and how many method are there to calculate the cost of any product? Please explain with examples. thanks

anon65424

What are the similarities and differences between cost accounting, financial accounting and management accounting?

anon60110

what are the activities and scope of a cost accounting department?

anon56103

what is a cost sheet and also its merits and demerits?

medabalaji

Give me the details of cost accounting and give the details of the cost accounting with the live examples and give the instructions for the seminar on the topic of cost accounting and give me more information on the topic. Regards, Balaji

anon35680

different definition of cost accounting

Fae

Hi- Is there a financial model one can use when calculating Price fixing? One that includes duty, *total* cost of freight and handling, etc...

anon33230

accounting cycle?

anon31062

What are some similarities and differences between cost accounting, financial accounting and managerial accounting?

vijikiran198

hi.. Can you please tell me the definition and the merits & demerits of Cost Accounting and some solved problems?

Regards,

Viji

anon23213

Cost is the amount or price incurred in the course of producing a particular product, process, service, a job or an activity.

anon21229

I find this article very informative and easy to understand. Please explain the relationship among cost, management and financial accounting?

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