We explain what cost accounting is and what you should take into account. Also, why cost accounting is so important.
What is cost accounting?
Cost accounting offers real and concrete information on all the costs and expenses that a company has to produce. Establishing the cost of a product serves to have control over the production, sale of the product, its administration and financing.
The cost is the value paid to obtain goods or services. The cost causes a reduction in assets. A company's costs are related to the activities carried out daily.
When carrying out cost accounting, administrative and managerial work is evaluated. It is always necessary to compare the company's income and the costs that they have previously projected.
See also: Accounting
What should cost accounting take into account?
A company needs take certain aspects into account when accounting for costs. First of all, the product and its elements, the volume and production, the tasks performed, the time period, etc.
As to products must take into account the materials or resources used in its production, directly and indirectly, labor (that is, the effort of employees, both physical and mental) and manufacturing costs.
With respect to the activities carried out around the production of a product manufacturing is taken into account that is, production, the market (promotion and sale of the product), administrative costs (salaries, etc.) and financial costs.
For example, if a product has a material cost of a certain value, the salary of the employees who produce it must be added to that, what is spent on distribution and advertising, taxes, etc.
You have to differentiate between costs and expenses. Cost is the monetary value of raw materials and labor. Expense corresponds to the time of production, distribution and administration of the company, such as the payment of salaries.
Why is cost accounting important?
Knowing production costs in detail allows greater control of operations. Cost accounting offers the company all the information it needs to make timely and correct decisions based on real and concrete information.
This information is useful for develop new projects and evaluate the activities carried out within the company. As we said at the beginning of this article, knowing the cost of a product helps us to have control over the production, sale of the product, its administration and financing.
Accounting always aims to provide useful data to the managers of a company or entity to be able to make correct decisions in the economic area. The returned data is recorded in accounting documents that show the economic situation of the company in question. In general, cost accounting seeks short-term objectives so that the company obtains profits and not losses.
In addition, the company will know exactly how much to sell the product for according to its total expenses, which exceeds raw materials, since labor and administration are taken into account. The company thus finds a state of balance between income and costs and in this way you will be able to make decisions, which is ultimately the primary objective of a company.
