What is Cost Accounting?

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 a form of managerial accounting that aims to capture a company’s total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense.

Cost accounting is a process of recording, analysing 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. 

Scope of Cost accounting

1. Cost analysis: costing determines the deviation of the actual costs compared to the planned costs and the reason for such fluctuations.
2. Cost audit: a cost audit is performed to verify the cost sheet and ensure the efficient application of cost accounting principles in the industry.
3. Cost report: Cost Report is created from data taken through cost accounting that is analyzed by management for strategic decision making.
4. Cost confirmation: to determine the price of a product or service, it is essential to know the total cost involved in the generation of that product or service.
5. Cost book keeping:as with Financial Accounting, Journal entries,ledgers,balance sheets and profit and loss accounts are also prepared in costing. Here, the different costs incurred are debited, and the income from the product or service is credited.
6. Cost system: it provides time to monitor and evaluate the costs incurred in the production of goods and services, to generate cost reports for management.
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Features of Cost Accounting

• It is a sub-field in accounting. It is the process of accounting for costs
• Provides data to management for decision making and budgeting for the future
• It helps to establish certain standard costs and budgets.
• provides costing data that helps in fixing prices of goods and services
• Is also a great tool to figure out the efficiency of a unit or a process. It can disclose wastage of time and resources.

Types of Cost Accounting

Standard Costing

Standard costing assigns “standard” costs, rather than actual costs, to its cost of goods sold (COGS) and inventory. The standard costs are based on the efficient use of labour and materials to produce the good or service under standard operating conditions, and they are essentially the budgeted amount. Even though standard costs are assigned to the goods, the company still has to pay actual costs. Assessing the difference between the standard (efficient) cost and the actual cost incurred is called variance analysis.

Activity-Based Costing

Activity-based costing (ABC) identifies overhead costs from each department and assigns them to specific cost objects, such as goods or services. The ABC system of cost accounting is based on activities, which refer to any event, unit of work, or task with a specific goal, such as setting up machines for production, designing products, distributing finished goods, or operating machines. These activities are also considered to be cost drivers, and they are the measures used as the basis for allocating overhead costs.

Marginal Costing

Marginal costing (sometimes called cost-volume-profit analysis) is the impact on the cost of a product by adding one additional unit into production. It is useful for short-term economic decisions. Marginal costing can help management identify the impact of varying levels of costs and volume on operating profit. This type of analysis can be used by management to gain insight into potentially profitable new products, sales prices to establish for existing products, and the impact of marketing campaigns.

Importance and Objectives of Cost Accounting

• Classification of Cost
• Cost Control
• Price Determination
• Fixing of Standards

Advantages

• Measuring and Improving Efficiency
• Identification of Unprofitable Activities
• Fixing Prices
• Price Reduction
• Control over Stock
• Evaluates the Reasons for Losses
• Aids Future Planninghttps://en.wikipedia.org/wiki/Cost_accounting