{"id":25531613,"date":"2022-07-03T15:00:09","date_gmt":"2022-07-03T09:30:09","guid":{"rendered":"https:\/\/entri.app\/blog\/?p=25531613"},"modified":"2022-07-03T15:00:09","modified_gmt":"2022-07-03T09:30:09","slug":"cost-accounting","status":"publish","type":"post","link":"https:\/\/entri.app\/blog\/cost-accounting\/","title":{"rendered":"Importance of Cost Accounting and its Application"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e9a53653b0e\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e9a53653b0e\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Highlights\" >Highlights<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Cost_Accounting_Meaning\" >Cost Accounting: Meaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Cost_Accounting_Purpose\" >Cost Accounting: Purpose<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Cost_Accounting_Benefits\" >Cost Accounting: Benefits<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Types_of_costs\" >Types of costs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Types_of_cost_accounting\" >Types of cost accounting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Difference_Between_Cost_Accounting_and_Financial_Accounting\" >Difference Between Cost Accounting and Financial Accounting:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#The_Importance_of_Cost_Accounting\" >The Importance of Cost Accounting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#The_Objectives_of_Cost_Accounting\" >The Objectives of Cost Accounting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Cost_Accounting_Applications\" >Cost Accounting Applications<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/entri.app\/blog\/cost-accounting\/#Cost_Accounting_Quiz\" >Cost Accounting: Quiz<\/a><\/li><\/ul><\/nav><\/div>\n<p>The companies always look for\u00a0lastingness and presence in the business market, as the business market is defined\u00a0by intense competition and a permanent increase in the no\u00a0of companies, companies had to build a strong system of costs equivalent\u00a0with the nature of the company&#8217;s function\u00a0and provide accurate information of product prices\u00a0that enable them to get\u00a0control over the cost elements and then leave out\u00a0avoidable costs and reduce\u00a0the costs of products as much as possible while achieving the desires of the consumer\u00a0to improve\u00a0product sales and then profits maximization, finally, continuity and increase competitiveness in the business market, and to accomplish this intimidating equation, it is just companies must 1<sup>st<\/sup>\u00a0\u00a0apply modern cost systems such as ABC (activity-based costing), as well as follow new\u00a0methods of reducing costs such as the continuous target costing,\u00a0improvement method, \u00a0and total quality management, etc. However, with the verity\u00a0of activities and the huge\u00a0size of companies, the application of such modern systems for cost accounting has become hard\u00a0and can only be obtained\u00a0with the help\u00a0of cost accounting software that achieves the company&#8217;s objectives by connecting all departments and providing all the accurate data of the company&#8217;s cost elements in a way that guarantees\u00a0companies control the cost elements and then have control over them, in this article\u00a0we will cover how this can be achieved. We will also discuss the importance, types, functions and applications of cost accounting.<\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Highlights\"><\/span><strong><b>Highlights<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>Cost accounting focuses on the expenditures involved with running your business.<\/li>\n<li>It is a usual form of accounting for manufacturing businesses, as it allows them to break out costs for every product they manufacture.<\/li>\n<li>Cost accounting, when it\u2019s used suitably, can help businesses recognise areas where they can save money.<\/li>\n<\/ul>\n<p>A key component of accounting is to understand how much you are spending. If you don\u2019t have a control on your expenses, you will never understand whether your business is making money. This is \u00a0where cost accounting comes in to play. Cost accounting focuses specifically on the costs associated with running your business. Before you can understand cost accounting in detail, it is important to understand what does it exactly mean, the different types of cost accounting and the advantages of this type of financial tracking.<\/p>\n<p><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-25483248 size-full\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1.png\" alt=\"Stay Updated for Free GK &amp; Current Affairs\" width=\"970\" height=\"250\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1.png 970w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-300x77.png 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-768x198.png 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-750x193.png 750w\" sizes=\"auto, (max-width: 970px) 100vw, 970px\" \/><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cost_Accounting_Meaning\"><\/span><strong><b>C<\/b><\/strong><strong><b>ost <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting<\/b><\/strong><strong><b>: Meaning<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Cost accounting is a form of accounting that concentrates\u00a0strictly on a business\u2019s costs \u2013 both fixed and variable. Using the cost accounting method, companies identify\u00a0all of their costs and allocate them to various\u00a0processes or units of production, allowing managers to clearly\u00a0understand the economics of their business\u2019s activities.<\/p>\n<p>Cost accounting is particularly\u00a0important for businesses that manufacture and sell at scale and\/or have various\u00a0product lines, as these companies have plenty of\u00a0costs associated with manufacturing, packaging, and distributing their goods. For these types of businesses, accounting for costs is essential\u00a0to\u00a0accurately calculating profit margins, along with\u00a0forecasting, budgeting\u00a0and identifying efficiencies.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cost_Accounting_Purpose\"><\/span><strong><b>C<\/b><\/strong><strong><b>ost <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting<\/b><\/strong><strong><b>: Purpose<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Compared to other types of accounting, cost accounting provides\u00a0companies a comprehensive view of their costs. Cost accounting tracks all of a company\u2019s costs linked\u00a0with its offerings and allocates them to specific products or activities. On the other hand\u00a0in financial accounting, costs appear as just one or two\u00a0line items on a budget, cost accounting allows\u00a0businesses bring down the\u00a0expenses to see exactly what is driving costs. This can give\u00a0better insights into what the company can do to reduce\u00a0costs and amplify\u00a0profits.<\/p>\n<p>In general, there are only two method by which\u00a0companies can\u00a0make more money: They can either\u00a0increase sales\u00a0(which is largely out of their control), or they can\u00a0reduce costs\u00a0(which they have better\u00a0control over).<\/p>\n<p style=\"text-align: center\"><a href=\"https:\/\/bit.ly\/3MWTnuS\" target=\"_blank\" rel=\"noopener\"><strong>Grab study materials to strengthen your GK !!! Register Now !!!<\/strong><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cost_Accounting_Benefits\"><\/span><strong><b>C<\/b><\/strong><strong><b>ost <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting<\/b><\/strong><strong><b>: Benefits<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Not only can you understand the total costs involved to manufacture your products, but it can be easier to spot instances of overcharging by sellers. In addition to that\u00a0your company may be able to determine efficiencies that allow you to save money.<\/p>\n<p>Some of the benefits of cost accounting are listed below:<\/p>\n<p><strong><b>Cost allocation:<\/b><\/strong>\u00a0Managers can assign\u00a0costs by product line and per unit of production or an hour\u00a0of labor.<\/p>\n<p><strong><b>Profit drivers:<\/b><\/strong>\u00a0Cost accounting helps business owners get\u00a0a deeper understanding of their profit margin and what controls\u00a0it.<\/p>\n<p><strong><b>Budgeting and forecasting:<\/b><\/strong>\u00a0Calculating costs for single activities helps senior managers plan for future expenditures\u00a0and forecast their monetary\u00a0resource into the future.<\/p>\n<p><strong><b>Cost savings:<\/b><\/strong>\u00a0With the help of\u00a0cost accounting, businesses may be able to recognise\u00a0new efficiencies to help save money.<\/p>\n<p><strong><b>Quicker decisions:<\/b><\/strong>\u00a0Cost accounting can help managers respond rapidly\u00a0to changes in the market, such as when the cost of raw materials ramps up.<\/p>\n<p>In addition to these, cost accounting can also help business owners to ensure that\u00a0they capture all of their tax-deductible expenses.<\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Types_of_costs\"><\/span><strong><b>Types of costs<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>When using cost accounting, it is essential\u00a0to learn about\u00a0the different types of costs.<\/p>\n<table>\n<tbody>\n<tr>\n<td><strong><b>Cost<\/b><\/strong><\/td>\n<td><strong><b>Examples<\/b><\/strong><\/td>\n<\/tr>\n<tr>\n<td>Fixed\u00a0Cost<\/td>\n<td>Mortgage payments, rent\u00a0and insurance<\/td>\n<\/tr>\n<tr>\n<td>Variable\u00a0Cost<\/td>\n<td>Supplies, raw materials, \u00a0packaging<\/td>\n<\/tr>\n<tr>\n<td>Operating\u00a0Cost<\/td>\n<td>Accounting and legal, utilities, marketing<\/td>\n<\/tr>\n<tr>\n<td>Direct\u00a0Cost<\/td>\n<td>Labour hours for production and distribution<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>While these are the 4 most common categories for grouping costs, there are different types as well, such as semi variable. In addition, some costs fall into many categories, or they may fall into different categories based on an individual company, the industry it\u2019s in and how it functions.<\/p>\n<h3><strong><b>Fixed costs<\/b><\/strong><\/h3>\n<p>Fixed costs don\u2019t vary\u00a0based on a company\u2019s level of production. These costs include items such as\u00a0mortgage payments, rent\u00a0and\u00a0salaries for administrative personnel. Fixed costs are important, as\u00a0they don\u2019t stop if managers temporarily stop\u00a0production. Some fixed costs don\u00a0not\u00a0halt\u00a0even if a business folds.<\/p>\n<h3><strong><b>Variable costs<\/b><\/strong><\/h3>\n<p>A company\u2019s variable costs are those that vary\u00a0depending upon the company\u2019s level of activity. For manufacturing companies, for eg, each additional unit of production needs\u00a0purchasing more raw materials.<\/p>\n<p>Variable costs are important\u00a0for a company because they are marginal \u2013 every\u00a0additional unit of production adds extra\u00a0cost to the company. These costs can often be reduced\u00a0through bulk discounts or other breakpoints.<\/p>\n<h3><strong><b>Operating costs<\/b><\/strong><\/h3>\n<p>Operating costs consists of\u00a0the expenses involved with running a facility (marketing and utilities are prime eg); it doesn\u2019t consider costs that are directly associated with production.<\/p>\n<p>Operating costs\u00a0may\u00a0be fixed or variable, but they\u00a0are\u00a0usually the costs that companies\u00a0require\u00a0to pay to stay in business \u2013 even if they aren\u2019t producing anything.<\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h3><strong><b>Direct costs<\/b><\/strong><\/h3>\n<p>Direct costs include\u00a0those costs that a company can tie directly to the production or distribution of a specific\u00a0product. For eg, if you run a manufacturing company, direct costs include the costs for running equipment to manufacture that product\u00a0along with labor hours for manufacturing a product.<\/p>\n<p>Direct cost is important\u00a0as\u00a0it is the easiest of the four types to allocate to a particular\u00a0activities or product lines, though it\u2019s not usually the easiest place to find cost savings.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Types_of_cost_accounting\"><\/span><strong><b>Types of cost accounting<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Within cost accounting, there are different sub-types. Each of these is used by different types of companies for various functions. For eg, lean cost accounting is for manufacturing companies utilizing other lean practices.<\/p>\n<p>The 4\u00a0major\u00a0types of cost accounting are:<\/p>\n<p><strong><b>Standard:<\/b><\/strong>\u00a0This is regular\u00a0cost accounting; costs for each product line are calculated depending upon\u00a0historical experience to be used for forecasting\u00a0and budgeting.<\/p>\n<p><strong><b>Activity:<\/b><\/strong>\u00a0Costs are assigned\u00a0by individual business activity (each product line).<\/p>\n<p><strong><b>Lean:<\/b><\/strong>\u00a0This is more specialized and fashioned to give\u00a0insights to manufacturing companies implementing other lean practices such as\u00a0lean manufacturing and lean\u00a0inventory management. It\u00a0is more conservative compared to other types of accounting. For example, you only document\u00a0the value of inventory over time.<\/p>\n<p><strong><b>Marginal:<\/b><\/strong>\u00a0Marginal cost accounting only considers the varying cost for a specific product. Whereas other types of cost accounting assign\u00a0a portion of fixed costs to each product line, in marginal cost accounting, these costs are not included. It assumes that fixed costs have to be remunerated whether a business takes on a certain activity or not, so they are not allocated to particular activities.<\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Difference_Between_Cost_Accounting_and_Financial_Accounting\"><\/span><strong><b>D<\/b><\/strong><strong><b>ifference <\/b><\/strong><strong><b>B<\/b><\/strong><strong><b>etween <\/b><\/strong><strong><b>C<\/b><\/strong><strong><b>ost <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting and <\/b><\/strong><strong><b>F<\/b><\/strong><strong><b>inancial <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting<\/b><\/strong><strong><b>:<\/b><\/strong><strong><b>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Cost accounting focuses strictly on a business\u2019s costs, while financial accounting combines this information with other costs, like liabilities,\u00a0revenue\u00a0and shareholder equity, to give\u00a0a extensive\u00a0look at a company\u2019s finances.<\/p>\n<p>Both cost and financial accounting are needed\u00a0to keep track of the elements of a business\u2019s finances. This data helps escort company strategy, including informed decision\u00a0making. However, while cost accounting aims at\u00a0tracking costs and allocating those costs to special\u00a0offerings or activities, financial accounting keeps track of\u00a0<em><i>all<\/i><\/em>\u00a0aspects of a company\u2019s finances. Financial accounting consists of cost accounting\u00a0along with other elements like\u00a0income, liabilities, and equity \u2013 which it combines to\u00a0give\u00a0detailed\u00a0reports\u00a0and insights into the company\u2019s financial circumstances and future prospects.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Importance_of_Cost_Accounting\"><\/span><strong><b>The <\/b><\/strong><strong><b>I<\/b><\/strong><strong><b>mportance of <\/b><\/strong><strong><b>C<\/b><\/strong><strong><b>ost <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li><b><\/b>Cost accounting is important for all functions(of a companies) and it is not as is prevalent that cost accounting is constricted in importance for manufacturing companies only, cost accounting has an important role in finding\u00a0and controlling the services cost, and that the success elements\u00a0of any commercial activity is the use of cost accounting systems and therefore the significance of cost accounting is as follows:<\/li>\n<li>Cost control by aggregating and recording all the cost elements of the company.<\/li>\n<li>Cost classification via cost accounting methods, which allows us to differentiate between all types of costs.<\/li>\n<li>Pricing of products in cost accounting plays an important role in limiting the pricing of products, as it provides cost reports, it is also possible to make use of newer\u00a0methods of pricing of products such as the target costing method, via\u00a0which the price of products can be calculated\u00a0and the target profit margin can be added before starting production.<\/li>\n<li>Contributing to amplify the company&#8217;s profits and increasing its competitiveness, had it not been for the cost accounting, the companies would not have been able to learn about the\u00a0costs of products and control it, and thus the ability to reduce costs to the lowest possible value\u00a0and increase profits to the maximum possible profit.<\/li>\n<li>Generating the budgeting, via the methods of cost accounting, the company can create budgeting, and so that such budgeting can be created, the actual activity costs of the company must be calculated\u00a0for previous years so that the company can predict\u00a0what the future cost will be and can also via\u00a0budgeting of tightening control and control of cost elements by comparing actual costs with standard costs and detecting deviations, then analyzing these variances and working to\u00a0resolve these shortcomings of costs.<\/li>\n<li>Assisting the department in taking decisions by providing the necessary\u00a0cost reports, whether it is for the production elements or activities (cost centers) to help\u00a0the department in excluding the avoidable costs, and supporting the important cost centers that achieve the consumer\u2019s\u00a0desires and improve\u00a0the product\u2019s ability to compete in the market.<\/li>\n<li>Cost accounting has a set of objectives or rules that are seeking to accomplish in companies so that companies achieve their desired objectives.<\/li>\n<\/ul>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Objectives_of_Cost_Accounting\"><\/span><strong><b>The <\/b><\/strong><strong><b>O<\/b><\/strong><strong><b>bjectives of <\/b><\/strong><strong><b>C<\/b><\/strong><strong><b>ost <\/b><\/strong><strong><b>A<\/b><\/strong><strong><b>ccounting<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The objectives of cost accounting are completely in\u00a0accordant\u00a0with the company\u2019s objectives, as they both look forward to cost reduction and increasing the profitability and competitiveness of the company, perhaps the most important objectives of Cost Accounting\u00a0are the following:<\/p>\n<ul>\n<li>Accurately deciding product costs, through what cost accounting does of recording, collecting and classifying costs.<\/li>\n<li>Controlling of over cost elements.<\/li>\n<li>Assisting the department in taking decisions via appropriate\u00a0cost reporting.<\/li>\n<li>Planning for the future via cost accounting that provides the budgeting.<\/li>\n<li>Pricing products and finding the target costing and then profits maximization.<\/li>\n<li>Amplifying the profitability and competitiveness of companies.<\/li>\n<\/ul>\n<p>Given in the next section are some of the\u00a0most important applications of cost accounting for some activities.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cost_Accounting_Applications\"><\/span><strong><b>Cost Accounting Applications<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There is no activity without its ability to apply cost accounting to it because all activities can be applied to cost accounting<\/p>\n<p>We will discuss\u00a0some of the activities to which cost accounting is applied\u00a0in this section:<\/p>\n<h3><strong><b>1. <\/b><\/strong><strong><b>Hotel cost accounting<\/b><\/strong><\/h3>\n<p>Cost accounting in hotels is performed\u00a0to record all the hotel costs, assort\u00a0and analyze them to provide reports to the department for observation and decision-making purposes, in the hotel system; it follows the homogeneous system of accounts, each hotel department has its revenues and expenses and hence every unit\u00a0of the hotel can be considered as cost centers and cost accounting procedures in hotels is based on designing a chart of cost centers, which includes:<\/p>\n<h4><strong><b>i) <\/b><\/strong><strong><b>Revenue cost centers that generate revenue<\/b><\/strong><\/h4>\n<p>It represents the hotel divisions that generate revenue\u00a0for the hotel and are its activity base such as<\/p>\n<p>a) Rooms Division<\/p>\n<p>b) Food Department<\/p>\n<p>c) Beverage Department<\/p>\n<p>d) SPA&amp; Fitness Division<\/p>\n<p>e) Laundry Department<\/p>\n<p>d) Front Office Department<\/p>\n<h4><strong><b>ii) <\/b><\/strong><strong><b>Service cost centers that do not generate revenue<\/b><\/strong><\/h4>\n<p>a) Finance Department<\/p>\n<p>b) Human Resources Department<\/p>\n<p>c) Procurement Department<\/p>\n<h4><strong><b>The role of cost accounting in hotels<\/b><\/strong><\/h4>\n<p>Segregating \u00a0the hotel into cost centers where the costs is calculated, whether they are variable\u00a0costs or fixed\u00a0costs, direct costs or indirect costs, and each cost center is assigned\u00a0by its proportion of the costs, hence the role of cost accounting appears in calculating\u00a0the ratios of fixed costs from activities that do not make\u00a0revenue for the hotel to the total costs to work on reducing it to the maximum possible extent that does not impact\u00a0the operational capacity of the hotel, in addition to the role of cost accounting in determining\u00a0revenue from activity to know how much each department (cost center) make\u00a0revenue and how much is spent on it of the expense and in the end it is possible to generate\u00a0Cost Center reports for each specific department separately and also for the hotel in general.\u00a0Through these reports the hotel managers can leave out activities that do not generate revenue or address the shortcomings and analyze the causes of their problems as well as extend activities that generate revenue for the hotel.<\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h3><strong><b>2<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b>\u00a0Manufacturing Cost Accounting<\/b><\/strong><\/h3>\n<p>The manufacturing activity is determined\u00a0by that which is based on the process costing system; for example a manufacturing plant (packaged cheese), there are certain phases\u00a0for the production of a single package of the product. Hence, its\u00a0possible to calculate how much it costs from direct materials, direct labor and manufacturing overhead cost, and therefore it is easy to predict\u00a0the costs of each work order in advance, even if approximately, and creating production budgets and comparing these planned costs with the actual costs, and cost accounting calculates the cost elements for each work order through:<\/p>\n<h4><strong><b>a. <\/b><\/strong><strong><b>Direct Materials Cost<\/b><\/strong><\/h4>\n<p>It includes all the materials used in the production process, whether raw materials, semi-finished materials, or packing and packaging materials, etc. cost accountant keeps an eye on their prices by following the policy of perpetual inventory through controlling the inventory, which allows\u00a0him to determine direct material costs.<\/p>\n<h4><strong><b>b. <\/b><\/strong><strong><b>Direct Labor Cost<\/b><\/strong><\/h4>\n<p>It means all direct labor costs incurred production as wages for machine operators like sorting,\u00a0picking, packaging, \u00a0production line workers\u00a0etc.<\/p>\n<h4><strong><b>c. <\/b><\/strong><strong><b>Manufacturing Overhead\u00a0<\/b><\/strong><b>Cost<\/b><\/h4>\n<p>The cost accountant determines\u00a0all overhead costs and additional services and assign\u00a0them to the products in proportion to the consumption of each product of them and that is by creating cost centers for all production departments and allocating each department with the necessary overhead costs.<\/p>\n<h4><strong>The role of cost accounting in\u00a0manufacturing\u00a0<\/strong><\/h4>\n<p>Cost accounting has an important\u00a0role in the manufacturing activity, as it determines\u00a0the product costs accurately, which assists the company in setting product pricing policies, it also has a major role in tightening control over cost elements of direct material costs, direct labor cost and manufacturing overhead cost via\u00a0controlling materials costs and\u00a0the company can know the ratio of fixed costs to total costs in a way that assists the department to reduce the fixed costs to the minimum\u00a0possible value, which does not affect\u00a0the company&#8217;s activity. Cost accounting plays an important\u00a0role in the treatment of the cost variances through the provided budgeting, so each work order, it must be included in the budgeting to compare the actual costs with the standard costs and knowledge of variances and analyzing them and then treatment of these variances.<\/p>\n<h3><b>3.\u00a0<\/b><strong><b>The importance of cost accounting software<\/b><\/strong><\/h3>\n<p>Cost accounting software has an important\u00a0role in applying the policies and procedures of modern systems of cost accounting and calculating costs as accurately as possible, via<\/p>\n<p>a) Connecting\u00a0between the departments in the cost accounting software of the manufacturing companies assists in classifying, recording and appropriate allocation of all the costs to each cost center instantly\u00a0which leaves no provision for the field for neglecting any cost.<\/p>\n<p>b) Linking between the purchasing department and finance department of manufacturing companies allows\u00a0the cost accountant to determine\u00a0and control material costs as accurately as possible and measure\u00a0the prices of materials in a way that increases the ease of pricing products.<\/p>\n<p>c) Linking between the production department and the human resources department facilitates the determination\u00a0of wages and then the cost of the product.<\/p>\n<p>d) Creating a chart of cost centers and link it to the chart of accounts, that achieves modern systems of cost accounting.<\/p>\n<p>e) Reports provided by cost accounting software facilitate the works of cost control and for\u00a0creating budgeting and for\u00a0detecting variances as quickly and accurately as possible, thus finding\u00a0their causes and treating them.<\/p>\n<p>f) Cost accounting software facilitates the decision-making by getting\u00a0rid of\u00a0avoidable costs.<\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cost_Accounting_Quiz\"><\/span><strong><b>Cost Accounting: Quiz<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><b><\/b><strong><b>1. Financial audit <\/b><\/strong><strong><b>looks forward <\/b><\/strong><strong><b>at the verification of a<\/b><\/strong><\/p>\n<p>a) cost accounting<\/p>\n<p>b) financial accounting<\/p>\n<p>c) management accounting<\/p>\n<p>d) none of these<\/p>\n<p><strong>Ans: (b) financial accounting<\/strong><\/p>\n<p><strong>2. Volume variance is segregated into capacity variance, calender variance and<\/strong><\/p>\n<p>a) casual variance<\/p>\n<p>b) performance variance<\/p>\n<p>c) efficiency variance<\/p>\n<p>d) normal variance<\/p>\n<p><strong>Ans: (c)efficiency variance<\/strong><\/p>\n<p><strong>3. Management by exception exercise controls over<\/strong><\/p>\n<p>a) favourable items<\/p>\n<p>b) unfavourable items<\/p>\n<p>c) management<\/p>\n<p>d) subordinate<\/p>\n<p><strong>Ans: (b) unfavourable items<\/strong><\/p>\n<p><strong>4. ____ costing cannot be used in small concerns.<\/strong><\/p>\n<p>a) Unit<\/p>\n<p>b) Service<\/p>\n<p>c) Process<\/p>\n<p>d) Standard<\/p>\n<p><strong>Ans: (d) Standard<\/strong><\/p>\n<p><strong>5. _____ is the technique of exercising control over unfavourable items.<\/strong><\/p>\n<p>a) MBO<\/p>\n<p>b) MBT<\/p>\n<p>c) MBE<\/p>\n<p>d) ZBB<\/p>\n<p><strong>Ans: (c) MBE<\/strong><\/p>\n<p><strong>6. Standard cost of labour &#8211; Actual cost of labour is equal to __________.<\/strong><\/p>\n<p>a) Total labour cost variance<\/p>\n<p>b) Labour cost ratio<\/p>\n<p>c) Variance ratio<\/p>\n<p>d) Either (2) or (3)<\/p>\n<p><strong>Ans: (a) Total labour cost variance<\/strong><\/p>\n<p><strong>7. _______ costing is a standardisation of the costing practices and principles in the same industry.<\/strong><\/p>\n<p>a) Standard<\/p>\n<p>b) Uniform<\/p>\n<p>c) Process<\/p>\n<p>d) Marginal service<\/p>\n<p><strong>Ans: (b) Uniform<\/strong><\/p>\n<p><strong>8. The success of ______ costing is dependent on mutual trust and co-operation among the units.<\/strong><\/p>\n<p>a) standard<\/p>\n<p>b) uniform<\/p>\n<p>c) process<\/p>\n<p>d) service<\/p>\n<p><strong>Ans: (b) uniform<\/strong><\/p>\n<p><strong>9. Uniform costing facilitates _____ comparison of cost of production.<\/strong><\/p>\n<p>a) inter-firm<\/p>\n<p>b) inter-unit<\/p>\n<p>c) intra-firm<\/p>\n<p>d) intra-unit<\/p>\n<p><strong>Ans: (b) inter-unit<\/strong><\/p>\n<p><strong>10. Cost audit assists the<\/strong><\/p>\n<p>a) manager<\/p>\n<p>b) customer<\/p>\n<p>c) shareholder<\/p>\n<p>d) financial auditor<\/p>\n<p><strong>Ans: (d) financial auditor<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: center\"><a href=\"https:\/\/bit.ly\/3MWTnuS\" target=\"_blank\" rel=\"noopener\"><strong>Grab study materials to strengthen your GK !!! Register Now !!!<\/strong><\/a><\/p>\n<p><span data-preserver-spaces=\"true\">I hope this article was helpful. The key point to clear an exam lies in methodical and planned preparation. If you are a candidate who wants to pursue your dream career and looking for a good start, our\u00a0\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/entri.sng.link\/Bcofz\/od54\/6blp\" target=\"_blank\" rel=\"noopener\"><strong><span data-preserver-spaces=\"true\">Entri app<\/span><\/strong><\/a><span data-preserver-spaces=\"true\"> has got it covered for you. Our team will help you with content and insights related to the topics of your concern. Subscribe to our app today and enrol yourself into various programmes our app offers. Tune in to the app to stay updated regarding various aspects of the subject you are interested in. Feel free to post any queries and doubts in the comment section. We will try our best to reach out. Push away all those self-doubts and negative thoughts. Try to have a clear vision. Ask yourself why you want this. Focus on the good and work hard. 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Good luck.<\/span><\/p>\n<p><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-25483248 size-full\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1.png\" alt=\"Stay Updated for Free GK &amp; Current Affairs\" width=\"970\" height=\"250\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1.png 970w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-300x77.png 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-768x198.png 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-750x193.png 750w\" sizes=\"auto, (max-width: 970px) 100vw, 970px\" \/><\/a><\/p>\n<p style=\"text-align: center\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The companies always look for\u00a0lastingness and presence in the business market, as the business market is defined\u00a0by intense competition and a permanent increase in the no\u00a0of companies, companies had to build a strong system of costs equivalent\u00a0with the nature of the company&#8217;s function\u00a0and provide accurate information of product prices\u00a0that enable them to get\u00a0control over the [&hellip;]<\/p>\n","protected":false},"author":42,"featured_media":25531615,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[802,558],"tags":[],"class_list":["post-25531613","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-general-knowledge"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - 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