What Is Cost Accounting?
Cost accounting is the reporting and analysis of a company's cost structure. Cost accounting is a process
of assigning costs to cost objects that typically include a company's products, services, and any other
activities that involve the company.
Cost accounting is helpful because it can identify where a company is spending its money, how much it
earns, and where money is being lost. Cost accounting aims to report, analyze, and lead to the
improvement of internal cost controls and efficiency. In short, cost accounting is a system of operational
analysis for management.
KEY TAKEAWAYS
Cost accounting is the reporting and analysis of a company's cost structure.
Cost accounting involves assigning costs to cost objects that can include a company's products,
services, and any business activities.
Cost accounting is helpful because it can identify where a company is spending its money, how
much it earns, and where money is being lost.
Understanding Cost Accounting
Even though cost accounting is commonly referred to as a costing method, the scope of cost accounting
is far broader than mere cost. Cost accounting has elements of traditional bookkeeping, system
development, creating measurable information and input analysis.
Modern methods of cost accounting first emerged in the manufacturing industries, though its advantages
helped it spread quickly to other sectors. For many firms, cost accounting helps create and measure
business strategy in a more organic way. Companies that are looking to expand their product line would
need to understand the cost structure. Cost accounting helps management plan for future capital
expenditures, which are large purchases of plant and equipment.
Types of Costs in Cost Accounting
Although there are many types of costs that businesses can incur depending on their industry, below are
a few of the most common costs involved in cost accounting.
Direct Costs
A direct cost is a cost that's directly tied to the production of a product and typically includes direct
materials, labor, and distribution costs. Inventory, raw materials, and employee wages for factory workers
are all examples of direct costs.
Indirect Costs
Indirect costs can't be directly tied to the production of a product and might include the electricity for a
factory.
Variable Costs
Costs that increase or decrease with production volumes tend to be classified as variable costs. A
company that produces cars might have the steel involved in production as a variable cost.
Cost accounting is the reporting and analysis of a company's cost structure. Cost accounting is a process
of assigning costs to cost objects that typically include a company's products, services, and any other
activities that involve the company.
Cost accounting is helpful because it can identify where a company is spending its money, how much it
earns, and where money is being lost. Cost accounting aims to report, analyze, and lead to the
improvement of internal cost controls and efficiency. In short, cost accounting is a system of operational
analysis for management.
KEY TAKEAWAYS
Cost accounting is the reporting and analysis of a company's cost structure.
Cost accounting involves assigning costs to cost objects that can include a company's products,
services, and any business activities.
Cost accounting is helpful because it can identify where a company is spending its money, how
much it earns, and where money is being lost.
Understanding Cost Accounting
Even though cost accounting is commonly referred to as a costing method, the scope of cost accounting
is far broader than mere cost. Cost accounting has elements of traditional bookkeeping, system
development, creating measurable information and input analysis.
Modern methods of cost accounting first emerged in the manufacturing industries, though its advantages
helped it spread quickly to other sectors. For many firms, cost accounting helps create and measure
business strategy in a more organic way. Companies that are looking to expand their product line would
need to understand the cost structure. Cost accounting helps management plan for future capital
expenditures, which are large purchases of plant and equipment.
Types of Costs in Cost Accounting
Although there are many types of costs that businesses can incur depending on their industry, below are
a few of the most common costs involved in cost accounting.
Direct Costs
A direct cost is a cost that's directly tied to the production of a product and typically includes direct
materials, labor, and distribution costs. Inventory, raw materials, and employee wages for factory workers
are all examples of direct costs.
Indirect Costs
Indirect costs can't be directly tied to the production of a product and might include the electricity for a
factory.
Variable Costs
Costs that increase or decrease with production volumes tend to be classified as variable costs. A
company that produces cars might have the steel involved in production as a variable cost.
