What is Cost Accounting used for?

Before proceeding to reveal the meaning of the term in question, we are going to carry out, to better understand this meaning, the establishment of the etymological origin of the words that comprise it. Specifically, both come from Latin.

In the first place, accounting emanates from the Latin word computare which can be translated as “count” while, secondly, we can establish that cost comes from the verb costare which is synonymous with “cost”.

The accounting is the art and science which aims to create and disseminate useful information to those making economic decisions. For this, it studies the assets of an individual or an organization and presents its conclusions in documents that are called accounting statements or financial statements, which represent a summary of an economic situation.

The cost, also known as cost, is the financial outlay which involves the supply of a service or develop a product. This cost affects the sale price to the final consumer, since it can be said that this price is equal to the sum of the cost plus the profit for the producer.

The cost accounting and cost accounting, therefore, is the branch of accounting that is responsible for analyzing the contribution margin and breakeven of the cost of the product. Cost accounting can be understood as a discipline of management accounting.

When determining what the aforementioned cost accounting is and what it is for, it is very important that we bear in mind that it is developed from the use of a series of elements such as the so-called accounting principles. A denomination is under which terms of great importance in the sector are included such as, for example, economic goods that are the set of goods (tangible and intangible) that have an economic value and that, therefore, can be valued in monetary matter.

The accrual, the currency counts, the exercise, the materiality or the equity are other of those principles that are fundamental within the scope of accounting and, therefore, also in the modality that concerns us.

And all this without forgetting the set of types of existing costs that can be classified based on their modality or the assignment made to an object. This last section would include indirect ones, which cannot be objectively distributed among the products, and direct ones that can be objectively distributed.

Typically, cost accounting allows financial statements to be prepared with a short-term view. The break- even point is the smallest number of units that a manufacturer must produce and market for the profit to be equal to zero: this means that, at that point, the total costs equal the total income per sale. Thereafter, the company makes a profit.

Take the example of making a television. If the manufacturer has to spend $ 100 on raw materials and $ 200 on the wages of the workers needed for production, the cost of a television reaches $ 300. This company, therefore, will not be able to sell the television below this amount, otherwise it would lose money. This type of analysis is part of the orbit of cost accounting.

Cost Accounting