the two basic types of cost accounting systems are

The two basic types of cost accounting systems are

Cost accounting is used to analyze all of a company’s expenses. It improves the decision-making process based on the evidence. Cost accounting helps managers to make strategic plans by generating useful information. In this article, we are going to Understand what is cost accounting and how it is essential to manage cost structure and how accounting costs and economic costs differ because both have two different concepts in the business world. In this context, we are going to learn about cost accounting, the two basic types of cost accounting systems are, accounting costs and economic costs differ because and much more: 

What is the cost structure?

The cost structure is repairing a company’s business model that includes all the costs necessary for your new venture to work. Any company directs its actions by cost or by value.

What is cost accounting?

The cost accounting is a division of general accounting which helps in the company’s management and strategic processes.

What are the two basic types of cost accounting systems are there?

The cost accounting system is the collection, classification, and organization of data regarding the costs of services and products of the organization. Here are the basic two types of cost accounting systems that’s are:

  • Job order costing
  • Process costing

Purpose of cost Accounting system

The cost accounting system helps to manage and monitor the organization’s performance. Some specific objectives of cost accounting are:

Estimate costs-For good management, scheduling, and planning
Maintain a good profit margin-Develop products
To maintain performance-improve quality, efficiency, and speed
Facilitate decision to cut costs-Choice of suppliers
It helps to improve necessary product investments

How is cost accounting divided?

Cost accounting can be divided into service cost accounting and industrial cost accounting.

Service Cost Accounting– a collection of all costs regarding service providing by the company.

Industrial Cost Accounting– the material needed for production, employees, and manufacturing expenses like depreciation of machines, energy, third parties, indirect materials, etc. all comes in Industrial Cost Accounting.

A process cost accounting system is most appropriate when / when process costing systems are appropriate?

A process cost accounting system is most appropriate when similar products are mass-produce through series of processes.

How to do cost accounting?

How to apply cost accounting? To better understand, you must have to practically follow all the steps that mentioned below.

Step 1:
First of all, List all costs and expenses that exist in the company

Step 2:
Separate the direct costs-As there need to calculate the direct costs for each product. You can calculate the cost per product by dividing the total cost by the number of products produced.

Step 3:
Compare the direct cost with the selling price of each model to compare it with the cost price.

Step 4:
Calculate the apportionment of indirect costs. For this, use the Contribution Margin Index as a criterion to divide the fixed costs among the products.

Step 5:
Find the break-even point for each product by the following formula:

Break-Even Point = Fixed Costs (Indirect) / Contribution Margin

Step 6:
Design strategy through the collected information so that you can analyze your company’s situation and identify possibilities for adjustments and improvements.

Cost accounting systems used by manufacturing companies are based on the following systems:

  • LIFO Inventory System
  • Perpetual Inventory system
  • Finished goods inventories
  • The periodic inventory system

Accounting costs and economic costs differ because

The accounting costs include only explicit costs or operating costs to carry out company activities. Determine the financial transactions of the company and by using financial transaction information, build objective reports. The accounting cost is record only in accounting books.

Economic costs include all opportunity costs related to the activity of production. It contains both the explicit and implicit costs. They include the costs recorded in the accounting books as well as the opportunity costs.


What are the different ways to do cost accounting?

The different ways to do cost accounting. The best known are:

Variable costing: only variable costs for production are used
ABC Costing: any type of cost considered.

What is the managerial cost?

Managerial cost is an analytical process that aims to analyze and identify data to operate a company’s operations and make the best decisions for the management of the company.

What is the difference between costs, expenses, and expenses within a company?

The difference between costs, expenses, and expenses within a company are:

Expenses: any amount that leaves the company’s cash
Expenses: expenditures to maintain the company structure operating properly
Cost: expenses directly linked to the final product

What are different types of the cost?

The different cost types are:

Direct costs-It is directly related to the product, For-example, raw material, and packaging materials.
Indirect costs- The indirect cost does not relate to the product directly. For example, the value of renting space, spending on water and electricity and the payment of employees, etc.

What are the methods for doing cost accounting?

The most common methods for doing cost accounting are:

  • Absorption or full costing
  • Direct or variable costing

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