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Cost Accounting is the process of reporting variable and fixed costs in a company after recording and analyzing the costs in relation to production of products


Cost Accounting makes it possible for a company to make educated financial decisions and budget accurately. In the long run, this helps increase the company’s profit margin. A business should know exactly how much money they have, this will make it easy for it to budget for the future. The role of the accountant is to be aware of the fixed and variable costs of an organization. With this information, the accountant can create estimates for the next budget

Accounting gives the organization the information they need to make improvements on the company’s processes. If there are things that the company has been spending money on but doesn’t need, they can stop doing it. For instance, if three people have been doing a job that can be done by two people, then a change can be made. This ensures that the company is more efficient. Once the organization is more efficient, it will make more money. This is because it has the same output for a less amount of money.


There are two basic types of costs. They are referred to as variable cost and fixed cost. Variable costs are costs which relate directly to product production. They include the cost of labor and the price of materials. These costs are not stable and are always fluctuating. Fixed costs are costs that are not related directly to production. However, they are necessary for production to take place. They include costs such as utilities and the cost of renting facilities used for production. Fixed costs often remain the same. Even when they fluctuate, it is not by a significant amount

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There are several methods of cost accounting. One of them is standard cost accounting. This is one of the older methods of accounting. It is mostly used in the manufacturing industry where manufacturers assign a standard cost instead of resource costs. Another method of cost accounting is activity-based costing. It is referred to as the ABC method and accounts for all activities taking place in product manufacturing and assigns a value to them. Environmental accounting is another method of cost accounting. This caters for the financial impact of a company’s product on the environment. Such costs include penalties and waste management costs.


The elements of cost accounting include material, labor and expenses. Material is also referred to as inventory. There are direct and indirect materials. Direct materials can be easily identified in the final product such as leather in a purse. Indirect materials are supporting materials such as the thread used in the purse. Labor refers to the money spent on paying wages to workers who work directly in production. Overhead refers to any other amount spent in production. This includes utilities such as gas, water and assessments. Wages to other staff not working in direct production. These categories are not permanently placed and can be flexible

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