Understanding cost accounting requires answering the following questions:
What
is Cost Accounting?
Cost
Accounting is a career and method of accounting in
which the accountant maintains
the costs of products or services for a
company.
Using various cost information, he reports costs, profits, and waste
costs. He also creates
many unique reports as required. Cost accounting is primarily for use
by the management of the company. Unlike financial accounting, this
information is not normally shared with the public. Cost accounting
information is secret information to the company, since it reveals the
costs and income for individual products or services. If the
competition knew this information, they would have an unfair advantage
when competing for new contracts.
The cost accountant establishes direct
labor and material
standards, along with burden
rates. It is very important to management that they know what the costs
are to make their product. If the costs are not accurate, then
management may quote new work at an incorrect price, or decisions about
the current work may be wrong.
Cost accounting is also takes a large part in the creation
of forecasts,
budgets
and business
plans
for the company. Costs start with the current costs for products and
services and then these costs are forecasted out for the future years
with known cost changes and assumed inflation costs.
The accountant also maintains inventory valuations and may become
part of several teams to reduce costs and price new work.
Are
there different types of cost accounting?
Cost
accounting adapts itself to the industry, manufacturing processes and
product. An airplane manufacturer will use job order costing, while a
manufacturer with a repetitive assembly line will use manufacturing
cost
accounting standards. Below are some of the different types: