Cost accounting

Cost accounting or cost accounting, also known as analytical accounting, is an accounting technique that aims to create an information system that allows knowing the cost of manufactured products.

It is an instrument that supports financial accounting, studying the structure of costs in companies. Cost accounting consists in making a reasonable allocation of direct and indirect costs that allows obtaining analytical information on which to rely on the decision-making of the company’s management.

Although both cost accounting and financial accounting are useful in the management of a company, cost accounting is information used only by company personnel, while financial accounting is information that can be used by both external users and by internal users

Objectives of cost accounting

The cost accounting information is addressed to the Company’s Management. It involves the assessment, analysis and control of the entire production process of which business exploitation is composed.

  • Determine the costs:What allows to value assets and results.
  • Analytical objective:Cost accounting allows the planning and control of business management, preparing budgets and preparing information to evaluate the yields and thus take the necessary measures.

How are accounting costs allocated?

Not all costs can be distributed in the same way to all manufactured products. Depending on the relationship with production, different types of costs are obtained that allow valuing the units produced:

  • Direct allocation:The purchase price of raw materials and services consumed directly attributable to the unit. They are those related to direct costs, which are those that can be measured and assigned unequivocally to a specific product (for example, in the manufacture of ice cream it would be the cost of the milk cream or the cost of the waffle waffle).
  • Indirect imputation:They are the part that reasonably corresponds to the costs indirectly attributable to the product. These are those related to indirect costs, which are affected by different processes and do not allow an exact viable measurement of the quantity consumed for the manufacture of each product (for example, factory rental, which of the goods produced are imputes higher percentage ?, all equal?).

Functions of a cost accounting system

A good cost accounting system allows:

  • It allows to know the efficiencyof the productive system.
  • Control the expenses generated in each phase of the production process.
  • Get the benefit of each unit produced and allows you to make decisions about what and how much to produce.
  • Detect and analyze deviations from what is planned to establish control mechanisms.
  • It allows valuing the inventories of the company.

Example of cost accounting

Suppose a company that produces yogurts and the total cost of unit production is 0.10 euros. In addition, it produces 1o.ooo.ooo of monthly units. The cost of paying employees represents 10% of the total monthly cost per unit produced and operating costs are another 10% of this cost. Calculate the monthly cost of the company.

The volume of the total cost of sales is 10,000,000 units * 0.10 unit cost yogurts = 1,000,000 euros.

Employee payment = 15,000,000 * 10% = 1,500,000 euros.

Operating expenses = 15,000,000 * 10% = 1,500,000 euros.

The total monthly cost will be 1,000,000 + 1,500,000 + 1,500,000 = 4,000,000 euros.

 

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