Cost Accounting
A method of accounting focused on capturing production and operational costs.
Cost accounting records, classifies, and allocates costs associated with producing goods or delivering services. Unlike financial accounting, it provides internal data for pricing, budgeting, and operational decisions. Key concepts include direct vs. indirect costs, fixed vs. variable costs, standard costing, and activity-based costing.
Example
A furniture manufacturer uses cost accounting to find a dining table costs $280 in materials, $120 in labor, and $60 in overhead—total $460—setting the retail price at $799.
Why It Matters for Your Business
Without cost accounting, you're guessing at pricing and profitability—knowing true costs is essential for setting prices and finding operational efficiencies.
Practical Tips
- •Separate direct costs (traced to products) from indirect costs (requiring allocation).
- •Review cost allocations annually to ensure overhead is distributed fairly across product lines.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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