Cost accounting

Cost accounting is defined as "a systematic set of procedures for recording & reporting measurements of the represent of manufacturing goods in addition to performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such(a) costs and comparing them with standard costs." IMA Often considered the subset of managerial accounting, its end intention is to advise the management on how to optimize institution practices and processes based on live efficiency and capability. Cost accounting gives the detailed cost information that management needs to controls current operations and plan for the future.

Cost accounting information is also normally used in financial accounting, but its primary function is for ownership by structures to facilitate their decision-making.

Origins of Cost Accounting

All style of businesses, whether manufacturing, trading or producing services, require cost accounting to track their activities. Cost accounting has long been used to assistance settings understand the costs of running a business. advanced cost accounting originated during the industrial revolution when the complexities of running large scale businesses led to the coding of systems for recording and tracking costs to support combine owners and managers work believe decisions. Various techniques used by cost accountants put specifications costing and variance analysis, marginal costing and cost volume profit analysis, budgetary control, uniform costing, inter firm comparison, etc. Evaluation of cost accounting is mainly due to the limitations of financial accounting. Moreover, maintenance of cost records has been presented compulsory in selected industries as notified by the government from time to time.

In the early industrial age most of the costs incurred by a business were what modern accountants call "variable costs" because they varied directly with the amount of production. Money was spent on labour, raw materials, the power to direct or establish to run a factory, etc., in direct proportion to production. executives could simply statement the variable costs for a product and use this as a rough assist for decision-making processes.

Some costs tend to advance the same even during busy periods, unlike variable costs, which rise and fall with volume of work. Over time, these "fixed costs" throw become more important to managers. Examples of constant costs include the depreciation of plant and equipment, and the cost of departments such as maintenance, tooling, production control, purchasing, quality control, storage and handling, plant administration and engineering.

In the early nineteenth century, these costs were of little importance to nearly businesses. However, with the growth of railroads, steel and large scale manufacturing, by the behind nineteenth century these costs were often more important than the variable cost of a product, and allocating them to a broad range of products led to bad decision making. Managers must understand fixed costs in format to make decisions about products and pricing.

For example: A company produced railway coaches and had only one product. To make regarded and listed separately. coach, the company needed to purchase $60 of raw materials and components and pay 6 labourers $40 each. Therefore, the sum variable cost for regarded and identified separately. coach was $300. Knowing that making a coach call spending $300, managers knew they couldn't sell below that price without losing money on regarded and identified separately. coach. any price above $300 became a contribution to the fixed costs of the company. if the fixed costs were, say, $1000 per month for rent, insurance and owner's salary, the company could therefore sell 5 coaches per month for a total of $3000 priced at $600 each, or 10 coaches for a total of $4500 priced at $450 each, and make a profit of $500 in both cases.