Nature of Cost Accounting 1

The broad definition of cost accounting and nature of cost is the process of identifying, summarizing, and interpreting information needed for:

  • Planning and Control
    • How to, Where and amount of investment in production line
  • Management Decisions
    • Which plans should be run first of all and steps pf plans
  • Products Costing
    • Calculation of sales prices of final produced items

So that, it means all manufacturing process should be controlled by cost accounting (Management accounting) in details.

Parts of cost accounting

Note that product costing is number 3, since in most companies, the more important activities relate to planning and control and special decisions rather than to the more mechanical aspects of accumulating and computing product costs.

Nature of cost accounting focused to manufacturing

nature of cost accounting in car factory

Nature of Cost accounting in car factory

In a car auto spares , it is important to find the cost of this part of car truly to make this factory profitable

Planning and Control

Management Decisions

Product Costing

The various activities (Nature and purpose) of a cost department under the broad definition cover a wide range of responsibilities:

  1. Preparing data required in planning and controlling operations.
  2. Preparing data in connection with day-to-day decisions or special projects that require a choice among alternative courses of action.
  3. Participating in the creation and execution of budgets.
  4. Establishing procedures to improve operations and reduce costs.
  5. Developing cost Systems and analyses to improve cost determination and review of variances
  6. Cost recording and reporting of costs by product or department.

Various activities of a cost department

The above tasks could be done by hand or accounting software. There are many accounting software for cost accounting. One of the famous accounting software that be used in the most countries is Peachtree accounting. You can determine cost of producing an item with some simple steps in this software.

Actually, calculating cost of product by hand takes long times because of many formulas but by computer software, it takes only 1 second !.

Next Pages of cost accounting

Classification of Costs

Cost Accounting Systems

Cost Systems in Accounting

Fixed Variable Costs

Management Accounting

Organization Costs

Roles in Cost Accounting

Cost Accounting Reports

Manufacturing Business