This is query of visitor from London, United Kingdom. He wants to know simple explanation of cost accounting. We all know cost accounting is determination and control of cost. But, a person who did not study accounting, can not understand even this simple definition of cost accounting. For such students, I can give following example to explain cost accounting simple way.
Example
Suppose, you are scientist. Often, you purchases the chemical bottles and uses for your business. Can you calculate the exact cost of each bottle? Cost of chemical bottle will include
1. The cost of purchase of bottle
2. If you have paid expense like freight, wages to laborer to pick and keep it in laboratory. These expense will be the part of chemical bottle cost.
This will formulate the direct cost of bottle. If you want to make your own chemical product. Then, you have to include other expenses like rent of laboratory, salary of laboratory assistant or lab. attendant. You also control your cost of your chemical products by using inventory management and cost accounting techniques like standard costing, break even point analysis.
Every producer should know basics of cost accounting. After learning cost accounting, you can reduce your cost yourself and you can get optimum return on your investment in production.
Example
Suppose, you are scientist. Often, you purchases the chemical bottles and uses for your business. Can you calculate the exact cost of each bottle? Cost of chemical bottle will include
1. The cost of purchase of bottle
2. If you have paid expense like freight, wages to laborer to pick and keep it in laboratory. These expense will be the part of chemical bottle cost.
This will formulate the direct cost of bottle. If you want to make your own chemical product. Then, you have to include other expenses like rent of laboratory, salary of laboratory assistant or lab. attendant. You also control your cost of your chemical products by using inventory management and cost accounting techniques like standard costing, break even point analysis.
Every producer should know basics of cost accounting. After learning cost accounting, you can reduce your cost yourself and you can get optimum return on your investment in production.
