Intro to Cost Accounting

What is Cost Accounting?

▪ Cost Accounting – system of detailed cost data that management needs to control current operations and plan for the future.

▪ It provides information that allows management to allocate resources to the most efficient and profitable areas of the business

▪ If you do not know how much something costs to make, then how do you know that you are making a profit?

▪ 3 objectives: cost control, product costing, and inventory costing.

All types of businesses use cost accounting.

Manufacturers – convert raw materials into goods – harder to cost products made from raw materials. Most manufacturers have a cost accounting system to track costs. Ideally, when an item is purchased, the cost of that item should flow whatever that item is used in the manufacturing process.

▪ Merchandising – purchase finished goods for resale

▪ Retailers – General public

▪ Wholesalers – Middleman

▪ For Profit Service Centers – economic entities that sell services rather than products

▪ Not For Profit Service Centers – providers of services at little or no cost to the user

Cost Accounting is heavily involved in creating unit prices for items.

Why are unit prices so important to businesses?

▪ Used to determine selling price

▪ Used to meet the pricing of the competition in the marketplace

▪ Used to bid on contracts

▪ Used to analyze profitability

Cost Accounting is heavily involved in the planning and the control of an economic entity.

▪ Planning – process of establishing goals or objectives for a firm and determining the means by which the firm will attain them.

▪ Control – process of monitoring the company’s operations and determining if the firm’s objectives are met.

o How can we do this?

▪ Assigning responsibility

• We use responsibility accounting as a means to...