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Cost accounting, also known as factory accounting, is a branch of accounting that focuses on collecting, analyzing, and allocating costs related to the production process within factories. Its main purpose is to determine the accurate cost per unit, which assists management in pricing, planning, and decision-making.
Direct Materials: Raw materials that are directly used in producing the final product.
Direct Labor: Wages of workers directly involved in the production process.
Manufacturing Overhead: Indirect costs such as electricity, factory rent, machine maintenance, and indirect supplies.
Job Order Costing: Used when production is based on specific orders or customized contracts.
Process Costing: Applied in factories producing large homogeneous quantities (e.g., food, cement, textiles).
Determine production cost accurately.
Set product prices fairly.
Control costs and detect variances.
Value inventory (raw materials, work-in-progress, finished goods).
Support decision-making regarding expansion or discontinuation of a production line.
Enables management to plan for the future.
Reduces waste and unnecessary expenses.
Increases efficiency and productivity.
Provides a competitive advantage by controlling unit cost.
Cost accounting is the backbone of factory management. It goes beyond cost recording by helping management improve operations and increase profitability through accurate and effective use of financial information.
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