Cost accounting

What is cost accounting?

Cost accounting, also called Analytical accounting, is a branch of accounting that deals exclusively with manage the production costs of a company.

To do it accumulates, predetermines, controls, distributes, analyzes and manages all costs that the company owns, with the objective of being able, through the financial information acquired, make decisions that benefit the entity through specific techniques and good planning.

In addition, cost accounting will evaluate how efficient the decisions made have been and, if any, will determine the weaknesses that are affecting the economic well-being of the company, with the aim of improving them.

Cost accounting objective

Cost accounting has as its main objective the keep prices stable and determine cost per unit of production.

At the same time, it also informs management about the costs necessary to carry out production and manufacturing operations.

By having cost accounting, a company is able to make decisions rationally.

Cost accounting features

Of the main characteristics of cost accounting we can highlight the following:

• It allows to know the cost of production and manufacturing of a company at a general level and per unit.
• Enhance production capacity and labor efficiency, which allows the business administration to make important decisions, both national and international.
• As part of accounting, it promotes efficiency in the financial decisions.
• Rigorously analyze costs and identifies the various elements, both direct and indirect, that affect the production of a company.
• Analyze the quality and efficiency of manufacturing and, based on this, elaborates advice and decisions that allow to improve the financial and labor part.

Cost accounting example

Take as an example a company that manufactures cell phones. Before putting production on the market, it must allow cost accounting to analyze the situation and propose the ideal price of the product.

To carry out the process, this accounting must identify the total cost of the production of a telephone; that is, establish your procedures, tests, documentation, supplies, insurance, etc. It must also define the alternative expenses related to employees, their profits, salaries and benefits.

Later will add such expenses And, with the result, you will be able to define the total price of a phone, always bearing in mind that it must be above the initial investment for the company's profits to be positive.