Real Position of the Business Comes Through Cost Accounting
Cost accounting can be defined as the process of accumulating, measuring, analyzing, interpreting and reporting of the information related to the cost. This type of process is useful and relevant for all internal and external stakeholders of the business entity. In the management accounting, the term cost accounting includes the works of establishing budget and actual cost of operations, processes, departments, analysis of the variances and profitability or social use of the funds. In the external stakeholders we include all those who have invested money in the company, such as banks, financial houses, investors and others. Internal stakeholders are those people who work within the premise of the company, such as business or company directors, division heads and managers.
Managers take the support of cost accounting and need not to follow the standards of Generally Accepted Accounting Principles (GAAP), because these norms primarily work for internal managers and accounting process is decides with pragmatic approach. Various costs are scaled in units of nominal currency, and process is taken as translating the supply chain in terms of financial values. According to the Financial Accounting Standards Board (FASB), the measurement of cost is a legitimate accounting method that account for investments. If there is no substantial influence of the investment over the company then cost method of accounting for investments is usual. This method includes the recoding process of the balance sheet at historical cost. Generally, cost accounting and management accounting are used interchangeably or you can say one is the subset of the other. It happens because the information used from cost accounts is required by management to execute the works like pricing decision, stock valuation and order assessment.
The cost of the production is calculated by the finance and accounts department with the help of modern and advanced technology. There is a very simple method of the cost accounting in which we accumulate total cost of the manufacturing goods and services and then divide it by the number of units. In this way we get per unit production cost. The department of accounts also comes out with some financial statements to provide us a specified amount of overheads that are incurred during production. The other costs tend to remain the same during production process like ‘fixed cost, while variable costs keep on rising and falling with the volume of production.
There is cost benefit analysis that refers to the systematic study of the costs of the product and services and the benefits derived from its completion. We can assess cost by some other managerial accounting approaches, such as Standardized or standard cost accounting cost accounting, lean accounting, activity-based costing, resource consumption accounting, throughput accounting, cost-volume-profit analysis/managerial costing.