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Cost accounting
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Cost accounting is an accounting system for analyzing and understanding a company’s cost structure. Unlike general accounting, which records a company’s financial transactions in an account book, cost accounting aims to identify the costs associated with the production of a company’s goods or services. It enables us to determine the profitability of each product or service, measure the efficiency of production processes and control costs.
Cost accounting uses calculation methods and tools to allocate costs. They are classified according to their nature and use. A distinction is generally made between direct costs, which can be attributed directly to a product or service, and indirect costs, which must be apportioned according to allocation criteria.
Cost accounting is particularly useful for companies with complex, diversified activities, such as manufacturing or production companies. It gives managers a clear view of company costs, enabling them to make informed strategic decisions to optimize profitability. It is also important for public services or non-profit organizations to assess performance and improve resource management.
Here are some concrete examples of cost accounting:
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Cost accounting makes it possible to analyze the costs of each of a company’s activities, to better understand its profitability.
- A company makes leather handbags. She wants to know which model is the most profitable. Using cost accounting, it can calculate the production costs of each model, taking into account direct costs (raw materials, labor, energy) and indirect costs (machine depreciation, overheads). It can then determine which production is most profitable and adjust its strategy accordingly.
- An airline wants to know which destinations are the most profitable. Using cost accounting, it can calculate the cost of each flight, taking into account direct costs (fuel, crew) and indirect costs (aircraft depreciation, overheads). It can then adjust its offer accordingly.
- A restaurant wants to know the profitability of each dish it offers. Using cost accounting, he can calculate the cost of each dish, taking into account direct costs (ingredients, kitchen staff) and indirect costs (rent, electricity, overheads). He can then adjust his menu accordingly
These examples show how cost accounting can help companies make informed decisions about profitability and efficiency.
