Cost accounting is coiled from two words, which are "cost "and "accounting." To effectively understand this concept, let us break it down into explaining the meaning of cost as well as accounting.
Cost is the expense incurred by a business or a company to produce one unit of a particular group. This can be well termed as a company sacrifice in production. Accounting is the art and science of recording, analyzing as well as classifying the information of the input which will help the management of the company to make concrete and effective management and financial decisions with ease.
That well said this concept is of different types. The types are well discussed below.
This is a type that involves monitoring costing final outputs, resource consumption as well as those resources which have been assigned to various activities and the cost object which are based on the estimates of the consumption. For effective activity-based costing, there must be the utilization of the cost drivers that attach the output top their activity costs.
The cost accountants accumulate the overheads that have incurred in a certain department and assign them a cost driver such as products, customers, or even services. These cost drivers are determined through the activity analysis.
The best part of activity-based costing is that it helps the management to fully and clearly understand how their money and time has been spent as well as to understand the profitability that results from the costs. Besides, employers can also survey to approximate the time spend by them in a particular activity.
This is the type of cost accounting that is used to compare the use of labor and material in standard production by the use of ratios. Therefore, this type of cost accounting uses variance analysis to compare the differences. For the traditional type of cost accounting, the elements only included materials and labor. Hence the including of the overhead in the accounting does not give true insight.
The disadvantage of this type of cost accounting is that it puts a lot of consideration in labor efficiency; hence, this element of labor efficiency takes a small proportion of cost in modern companies.
This type is also known as cost-volume-profit analysis. Marginal costing determines the relationship between sales' price, volume, costs, expenses, profit as well as the number of production units.
The basic formula for margin costing= (Revenue- Variable cost)/Revenue
The importance of cost-volume-profit analysis is that it assists the management to have an insight into the type of management strategies or campaigns, sale prices, changing cost, which will impact the profits.
These are types of costs that do not vary despite the amount of production. They include rent, depreciation value, etc.
These are types of that change with the level of production in a company. They include shipping costs, labor costs, processing costs, etc. The other types of types that are put into consideration when cost accounting are the operating costs, direct cost, semi-variable cost as well as indirect costs.
Do you need help with your cost accounting?
Cost accounting can be a bit complex, especially when you have to learn the postulations of the types of cost in a recording and analyzing manner. Due to that, it is better to seek for accounting answers from a professional expert.