Cost accounting is about calculating the total cost involved in the process of production. In a nutshell: “What it costs to create one widget!”
Estimating the accurate cost of products is critical for profitable operations. A business must know which products are profitable and which ones are not, and this can be ascertained only when it has estimated the correct cost of each product.
Cost accounting systems cannot be installed without proper financial accounting systems.
Talk to your accountant if you feel your business could benefit from having a cost accounting system.
Ann Marie owns a manufacturing business which makes a high-end product. She varies her design from time to time so there are many versions of her primary design.
Ann Marie did not have a cost accounting system that would determine the cost of producing each version. So she did not know which ones were cost-effective to produce and earn her more profit and which ones were not.
She engaged her accountant to select an appropriate cloud-based cost accounting system to tailor to her needs.
The Accountant analysed the manufacturing process and determined the basic activities involved. The next step was to create a system which would:
Ann Marie enthusiastically uses her new cost accounting system to:
The system allowed Ann Marie to measure production efficiency and thereby grow her profit and business.