Cost Accounting Overview

Definition: Cost accounting is the process of tracking, recording, and analyzing costs associated with manufacturing a product or providing a service.
Purpose:
- Assist management in budgeting and cost control.
- Help in decision-making and evaluating business performance.

Cost Terminology:
- Fixed Costs: Costs that do not change with the level of production (e.g., rent).
- Variable Costs: Costs that vary with production volume (e.g., materials).
- Semi-variable Costs: Costs that have both fixed and variable components (e.g., salaries + commission).
Cost Classification:
- By Nature:
  - Direct Costs: Directly traceable to a product (e.g., raw materials).
  - Indirect Costs: Not directly traceable (e.g., utilities).
- By Function:
  - Manufacturing Costs: Costs related to the production process.
  - Administrative Costs: Costs related to general management of the organization.
  - Selling Costs: Costs required to sell the product.
Costing Methods:
- Job Costing: Costs are assigned to specific jobs or batches.
- Process Costing: Costs are averaged over a large number of identical products.
- Activity-Based Costing (ABC): Costs are assigned based on activities and resource usage.

Budgeting: Preparing financial plans for future operations.
Variance Analysis: Comparing actual costs to budgeted costs to identify discrepancies.
Break-even Analysis: Determining the point where total revenues equal total costs.

Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold by a company.
Income Statement: Reflects revenues, costs, and profits over a specified period.
Balance Sheet: Shows company assets, liabilities, and shareholders' equity at a specific point in time.

Cost accounting tracks, analyzes and records costs associated with producing goods or services.
Management uses cost accounting to create budgets and control expenses.
Decision-making and performance evaluation are aided by cost accounting.

Fixed Costs remain constant despite production changes (e.g., rent).
Variable Costs fluctuate with changes in production (e.g., materials).
Semi-variable Costs include both fixed and variable elements (e.g., salary + commission).

By Nature:
- Direct Costs are directly linked to a product (e.g., raw materials).
- Indirect Costs cannot be easily traced back to a specific product (e.g., utilities).
By Function:
- Manufacturing Costs relate to the production process.
- Administrative Costs cover general management of the organization.
- Selling Costs are associated with selling products.

Job Costing assigns costs to individual jobs or batches.
Process Costing averages costs across large volumes of identical products.
Activity-Based Costing (ABC) allocates costs based on activities and resource usage.

Budgeting: Creating financial plans for future operations.
Variance Analysis: Comparing actual costs to planned costs to identify deviations.
Break-even Analysis: Identifying the production level where total revenue equals total costs.

Cost of Goods Sold (COGS): The direct costs related to producing goods sold by a company.
Income Statement: Reports revenues, costs, and profits over a specific period.
Balance Sheet: Displays company assets, liabilities, and equity at a particular moment in time.