What is cost accounting?

Cost accounting offers us real and concrete information of 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. What is cost accounting.

The cost is the value that is 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 conducting 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?

Regarding the products, the materials or resources used in their production must be taken into account, directly and indirectly, the labor (that is, the effort of the employees, both physical and mental) and the manufacturing costs.

With regard to the activities carried out around the elaboration 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 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.

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You have to differentiate what the costs are from 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 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 developing new projects and evaluating 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 obtained is recorded 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 expenses of the same, which exceeds the raw material, since labor and administration are taken into account. The company thus finds a state of equilibrium between income and costs, and in this way can make decisions, which is ultimately the primary objective of a company.