What Is Cost Accounting and Its Elements?

Cost accounting is a way of tracking cost and cost allocation, including direct material costs and indirect expenses. The cost accountant has to account for all the expenditures made in order to produce products or provide services.

The elements of cost comprise:

  • Material cost
  • Labor cost or wages
  • Expenses

Material cost

Material cost refers to the parts needed for a project like cloth.

Further subdivisions of material costs include:

  • Direct material cost: The cost of the raw materials that can be easily identified with a particular product or service.
  • Indirect material cost: The cost of the raw materials that are not directly associated with a particular product or service, but rather used in the production process as a whole. For example, the cost of fuel and lubricants used in the production of a product.

Labor cost or wages

The cost of paying people who work for an organization, such as wages, salaries, and commission.

Further subdivisions of Labor cost include:

  • Direct labor cost: The cost of the people who work directly on a product or service.
  • Indirect labor cost: Employees who do not directly contribute to the production process, but support employees working in that process. Also called factory overhead costs and indirect expenses.

Expenses

The cost of the services that are provided to an undertaking and the notional cost of using assets that you own.

Further subdivisions of expenses include:

  • Operating expenses: The cost of providing day-to-day services, such as rent, electricity, and insurance.
  • Non-operating expenses: Costs that are not directly associated with the provision of regular services, such as depreciation or interest payments on loans.

How Is Cost Accounting Used in Business?

The cost accountant has to track all expenditures related to cost accounting. The cost of the materials used in production, any labor costs, and expenses are recorded. These numbers allow businesses to make informed decisions about their cost structures, which is critical for financial planning purposes.

Businesses use cost accounting in various ways:

  • To set prices for products and services
  • To identify areas where costs can be reduced
  • To assess the profitability of products and services
  • To make informed decisions about expansion or contraction
  • To measure cost-efficiency

Cost accountants are in high demand because their skills allow businesses to save money and make more informed strategic decisions.

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Topics Covered by Our Cost Accounting Homework Helper

Below are the cost accounting topics covered by our cost accountant who provides cost accounting assignment help.

  • Cost behavior analysis
  • Direct Material Costing System
  • Direct Labor Costing System
  • Distribution Overhead Costing System
  • Flexible Budget Costing Method
  • Full cost method of depreciation calculation using journal entries.
  • Job and process costing
  • Manufacturing Overhead Costing
  • Standard cost system
  • Variable and Absorption cost pricing methods

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