We explain what cost accounting is and what it should take into account. In addition, why cost accounting is so important.
What is cost accounting?
Cost accounting offers us real and concrete information on all the costs and expenses that a company has to produce. Establishing the cost of a product serves to have control over the production, the sale of the product, administration and financing thereof.
The cost is the value paid for obtaining goods or services . The cost causes a reduction in assets. The costs of a company are related to the activities carried out daily.
When performing cost accounting, administrative and managerial work is evaluated . It is always necessary to compare the income of the company and the costs that have been previously projected.
In addition: What is accounting?
What should cost accounting take into account?
A company needs to consider certain aspects when accounting for costs . First of all, the product and its elements, the volume and production, the tasks performed, the period of time, etc.
As for the products, the materials or resources used in their production must be taken into account, directly and indirectly, labor (ie the effort of employees, both physical and mental) and manufacturing costs.
With regard to the activities carried out around the elaboration of a product , manufacturing is taken into account, that is, production, the market (promotion and sale of the product), administrative costs (salaries, etc.) and financial costs.
For example, if a product has a cost of materials of a certain value, to that must be added the salary of the employees who produce them, which is spent on distribution and advertising, taxes, and so on.
You have to differentiate what the costs are from the expenses. The cost is the monetary value of the raw material and labor . Expenditure corresponds to the time of production, distribution and administration of the company, such as the payment of wages.
Why is cost accounting important?
Knowing in detail the production costs allow greater control of operations. Cost accounting offers the company all the information it needs to make timely and correct decisions based on real and concrete information.
This information is useful for developing new projects and evaluating the activities carried out within the company. As we said at the beginning of this article, knowing the cost of a product helps us to have control over the production, sale of the product, administration and financing of the product.
Accounting always aims to provide useful data to the managers of a company or entity to be able to make decisions correctly in the economic area. The data provided is recorded in accounting documents that show the economic situation of the company in question. In general, cost accounting seeks short-term objectives for the company to obtain benefits and not losses.
In addition, the company will know exactly how much to sell the product in accordance with its total expenses, which exceeds the raw material, since labor and management are taken into account. The company thus finds a state of equilibrium between income and costs, and in this way it can make decisions, which is ultimately the primary objective of a company.