Running a business requires careful preparation and planning, from production activities, marketing, to financial records. The latter is one of the most important things because it is needed to know the in and out of the company’s money and accountability to investors. That’s why it takes cost accounting to know all about it. Then, what is meant by cost accounting and what is its purpose? Check it out in this article.
What is Cost Accounting?
There are many expert statements explaining what cost accounting is. According to Rayburn, this term includes activities that aim to identify, measure, analyze, and report on all elements of a business budget.
Schaum describes it as a procedure that includes recording and reporting the measurement results of the production budget in the form of goods and services. Likewise, the explanation from Carter and Usry who explained it as a field of science that focuses on cost calculations carried out for planning, controlling, quality improvement activities, method accuracy, and decision making.
While on the Wikipedia page it is described as a field of accounting devoted to the process of tracking, recording, and analyzing costs associated with the activities of an organization to produce goods or services. Cost here refers to the time and resources required and can be measured in units of currency.
From the various explanations above, it can be concluded that cost accounting includes the financial recording process that helps the production process of a company. Usually it is trading and manufacturing companies that apply this because there are detailed calculations required for each production cost.
What’s the goal?
There are several factors that explain the purpose of this cost accounting, including:
– To find out the various costs of production so that clear calculations can be made in determining the cost of goods and services.
– To clearly determine the cost of goods and services.
– To know the planning related to the planning of production costs and expenses.
– To serve as the basis for a more detailed budgeting process.
– For reporting to investors in order to find out the costs of entry and exit so that they can carry out a series of control costs.
Classification of Cost Accounting and Its Application in Business
Cost accounting is divided into 4 groupings based on the classification of main functions, objects, costs, and expenses for the accounting period. Let’s discuss one by one:
1. Judging from its main function, it is divided into production costs which include wages and raw material costs, marketing costs needed for promotion and advertising, as well as general administrative costs for additional expenses and salaries.
2. Judging from the object, divided into direct costs and indirect costs. For direct costs, the scope includes matters relating to production costs. Meanwhile, indirect costs include building rental costs, machine depreciation, and electricity tariffs.
3. Judging from the costs for production, they are divided into fixed costs which do not change in nature such as staff salaries and variable costs which are always dynamic following production such as raw material prices and electricity tariffs.
4. The latter is seen from the loading of the accounting period, namely capital expenditures and income expenditures.
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