The Purpose Of Cost Accounting

2272 Words10 Pages
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data is mostly utilized in financial accounting. The following paper seeks to explain in details the various methods of cost accounting and how various firms use these methods in accomplishing their tasks and the role played by cost accounting and how it relates to business success. In its broadest sense the primary purpose of cost accounting is to offer comprehensive cost information that helps the business regulate present business operations while helping them target and identify opportunities that leads to future business growth and expansions. In compiling and recording the data from the cost accounting reports, each manager is supposed to make recommendations and resolutions based on the goals and business growth projections for their perspective businesses. Being that each business is different there is no need for the data gathered to be comparable or related to data from other businesses. Instead, the data must be appropriate for a particular setting. Since the business climate and forec... ... middle of paper ... ...ave learned over the course of the semester, cost accounting is a very vital tool for all the businesses. This is because it enables firms to be able to minimize costs and maximize profits. To run any type of business, managers need to know the logistics of every department if they plan to achieve long term financial success. The above-discussed roles of cost accounting to businesses show how useful the method is to all the firms. For instance, it is because of cost accounting that different firms are able to set prices for products. Additionally, it is through cost accounting that business firms are able to know whether they are in a position of METHODS OF COST ACCOUNTING AND HOW THEY ARE USED making profit or not. There are also various types of cost accounting that comprise process accounting, Job-order costing and activity-based costing which have different roles.
Open Document