Master the Basics of Cost Accounting

Cost Accounting Overview

• Cost accounting is the process of tracking, recording, and analyzing costs associated with the production of goods or services.
• It helps businesses allocate resources efficiently and make informed financial decisions.

Main Purpose of Cost Accounting

• The primary goal of cost accounting is to assess the costs of products, projects, or processes to enhance profitability.
• It assists in budgeting, controlling costs, and setting prices based on accurate analysis.

Examples of Costs in Cost Accounting

• Costs included in cost accounting can encompass direct materials, direct labor, and overhead expenses.
• Direct costs, such as raw materials or wages paid to workers directly involved in production, are fundamental examples.

Primary Objectives of Cost Accounting

• Key objectives include providing management with insights for decision-making, controlling costs, and assessing performance.
• It does NOT focus primarily on external financial reporting; that is the duty of financial accounting.

Direct Costs in Cost Accounting

• A direct cost is one that can be directly traced to a specific product or service, such as the cost of plastic in manufacturing a bottle.
• These costs are essential for calculating the total cost of a product.