What is Cost Accounting?
Cost accounting is an approach to evaluating the overall costs that are associated with conducting
business. Generally based on standard accounting practices, cost accounting is one of the tools
that managers utilize to determine what type and how much expenses is involved with
maintaining the current business model. At the same time, the principles of cost accounting can
also be utilized to project changes to these costs in the event that specific changes are
implemented.
When it comes to measuring how wisely company resources are being utilized, cost accounting
helps to provide the data relevant to the current situation. By identifying production costs and
further defining the cost of production by three or more successive business cycles, it is possible
to note any trends that indicate a rise in production costs without any appreciable changes or
increase in production of goods and services. By using this approach, it is possible to identify the
reason for the change, and take steps to contain the situation before bottom line profits are
impacted to a greater degree.
Product development and marketing strategies are also informed by the utilization of cost
accounting. In terms of product development, it is possible to determine if a new product can be
produced at a reasonable price, considering the cost of raw materials and the labor and
equipment necessary to product a finished product. At the same time, marketing protocols can
make use of cost accounting to project if the product will sell enough units to make production a
viable option.
Cost accounting is helpful in making a number of business decisions. By weighing the actual
costs versus the anticipated benefit, cost accounting can help a company to avoid launching a
product with no real market, prevent the purchase of unnecessary goods and services, or alter the
current operational model in a manner that will decrease efficiency. Whether utilized to evaluate
the status of a department within the company or as