What is Cost Accounting?

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Cost accounting is the branch of accounting which directly pertains to the overall cost of running and managing a business. The concepts and formulae involved in this branch of accounting are based on standard accounting practices.

Cost accounting takes into consideration the expenses and the cash flow of an organization to analyze the cost of running it. Many mistakenly believe that cost accounting itself is an all-inclusive branch of accounts whereas that really isn’t the case. It is just the branch which deals with the cost of the business functions. Standard accounting practices are usually carried out side by side with cost accounting.

Here are some of the basic objectives for which cost accounting is utilized:

Measuring Company Resources:

Cost accounting helps provide data for the resources of the company being utilized. Identification of production costs related to a particular event and the creation of its data is the primary purpose of cost accounting. Also, cost accounting helps in identifying the cost of production through the three business cycles.

Marketing Strategies and Product Development:

Marketing strategies and product development plans are also addressed by using cost accounting. When it comes to product development, cost accounting can measure the cost of the product and determine whether it is right for the business or not. Similarly, cost accounting can also determine whether the marketing budget for the product is appropriate or not. Through cost accounting techniques, the effectiveness of the marketing plan can also be reckoned.

Decision Making:

Cost accounting plays an important role in making the right decisions for the company. The techniques involved to reach this stage usually compare the total cost of the product to the anticipated benefits.

Those handling cost accounting should keep in mind that the sole purpose of this branch of accounting is to manage costs and provide data for further consideration. Cost accounting itself is not responsible for making marketing plans or the creating action strategies.

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