Cost Accounting – Concept, characteristics and importance

We explain what cost accounting is and what you should take into account. Also, why is cost accounting so important.

Cost accounting
When carrying out cost accounting, administrative and managerial work is evaluated.

What is cost accounting?

Cost accounting we 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, administration and financing of the same.

The price is the value paid to obtain goods or services. The cost causes a reduction of assets. The costs of a company are related to the activities that are carried out on a daily basis.

When performing cost accounting, administrative and managerial work is evaluated. It is always necessary to compare the income of the company and the costs that they have previously projected.

What should cost accounting take into account?

A company needs take into account certain aspects when accounting for costs. First of all, the product and its elements, the volume and production, the tasks performed, the period of time, and so on.

As to the 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.

Regarding the activities carried out around the elaboration of a product manufacturing is taken into account, that is to say, of production, the market (promotion and sale of the product), administrative costs (salaries, etc.) and financial costs.

For example, if a product has a cost of materials of a certain value, to that must be added the salary of the employees who produce them, what is spent on distribution and advertising, taxes, and so on.

It is necessary to differentiate what are the costs of the expenses. Cost is the monetary value of raw materials and labor. Expenditure corresponds to the time of production, distribution and administration of the company, such as the payment of wages.

Why is cost accounting important?

Knowing the production costs in detail allows greater control of operations. Cost accounting provides the business with all the information it needs to take 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 data thrown is registered in accounting documents that show the economic situation of the company in question. In general, cost accounting looks for short-term goals so that the business makes a profit and not a loss.

In addition, the company will know exactly how much to sell the product for according to the total costs of the same, which exceeds the raw material, since labor and administration are taken into account. The company thus finds a state 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.