Cost accounting refers to a systematic practice of identifying, recording, and analyzing all variable and fixed costs associated with the production and sales of goods or services delivered by an entity.
Key Features of Cost Accounting
- Costs are segregated into direct labor, direct materials, factory overheads and administrative overheads categories
- Multiple costing systems like job costing, process costing or operating costing are applied depending on industry
- Management utilizes cost data for decision-making like pricing, cost control, and profitability analysis
- Periodic cost reports track expenditures, variances and cost performance against budgets
Example of Cost Accounting
A company manufacturing precision components maintains meticulous cost sheets detailing labor costs for each workcenter, supplies consumed, utilities spent, and machine hours utilized to manufacture product lines.
Key Takeaways
Cost accounting plays a pivotal role in effective inventory valuation and operational control. It also aids long-term planning by rational assessment of an enterprise’s cost behavior and the factors impacting it. Adopting a rigorous cost accounting system is indispensable for optimized industrial management.