Q:

What is cost accounting?

A:

Quick Answer

Cost accounting is a type of managerial accounting that considers budgets and the cost to produce items. Managers use the results from cost accounting to make decisions that maximize profits while minimizing expenses, according to Reference.com.

Continue Reading
What is cost accounting?
Credit: John Lamb Photodisc Getty Images

Full Answer

It is essential for a business to track its activities, regardless of the goods or services it provides, according to Wikipedia. Cost accounting provides data for managers to understand their operational costs. This field of accounting began during the industrial revolution as a way to improve the decisions of business owners and managers.

Early methods of cost accounting looked at variable costs, which are directly proportional to the amount of production and fixed cost, which remain the same, regardless of the amount of production. Reference.com indicates variable costs include wages and raw material while fixed costs include rent, insurance and the owner's salary. In order for a business to meet expenses, its income must equal or exceed the sum of the variable costs multiplied by the number of units produced and the fixed expenses.

In modern business practice, standard cost accounting is less useful to management than it was during the industrial revolution, according to Reference.com. Companies have fewer variable costs and equipment is more specialized and complex, making fixed costs a much larger part of the overall formula.

Learn more about Accounting

Related Questions

  • Q:

    What is a cost accounting system?

    A:

    According to AccountingExplained.com, companies use cost accounting systems to determine operations costs and estimate accurate costs of production. Cost accounting systems provide information in inventory valuation and cost control. Job order costing and process costing are the two main cost accounting systems.

    Full Answer >
    Filed Under:
  • Q:

    What is throughput accounting?

    A:

    Throughput accounting is an offshoot of variable cost accounting that treats direct material costs as the only variable cost, while all other costs are assumed to be fixed, explains Richard J. Lukesh of Turnaround.org. The accounting approach was developed by Eliyahu Goldratt as part of the Theory of Constraints paradigm.

    Full Answer >
    Filed Under:
  • Q:

    What are some basic accounting questions and answers?

    A:

    Typical topics for basic accounting questions include the items on a balance sheet and common abbreviations. Additional basic accounting questions may ask about accounting software, such as CGram Software, Financial Force and Microsoft Accounting Professional.

    Full Answer >
    Filed Under:
  • Q:

    What does a general ledger look like?

    A:

    A general ledger is a type of accounting document that includes all of the financial records for a company, often consisting of additional documents to track credits and debits on individual accounts as well as monitor available equity and inventory. The document may appear in a physical book, in a series of custom spreadsheets, or as pages within a digital record-keeping program.

    Full Answer >
    Filed Under:

Explore