Cost accounting system is the part of management accounting that makes budget, actual cost of operations, analysis of variance and profitability of social use of funds. Cost accounting helps the manager in decision making regarding the reduction of the cost of the company and in improving the profitability. Cost accounting system is primarily used for internal managers therefore it does not need to follow the standards of GAAP. Cost accounting is also considered very important for the translation of supply chain into financial values.
The purpose of cost accounting is to enable management to get as for as possible the exact cost of goods manufactured or services rendered, to furnish necessary facts and figures for adequate and effective managerial control and to provide management data necessary to determine output and products that will result in most profitable operations. The purpose of cost accounting is to assess the profitability of a product or services, a department or the organization.
In order to perform these functions properly it is imperative for the cost accountant to be familiar with managerial problems and to understand fully what facts and figures should be collected and presented to the management for the effective and profitable solution of these problems.
The nature and type of cost accounting working a specific concern will depend to the large extent on a number of variable factors such as Size of firm Whether large, medium, or small, Number of products being produced or services rendered, The nature of manufacturing operations, marketing and administrative processes, The expenditure which the firm can afford in the installation and successful operation of cost accounting system, The requirements of the management and Nature of the business whether manufacturing or merchandising.
The purpose of cost accounting is some different with managerial accounting . It tracks cost associated with a product and also ancillary cost specifically. Cost accounting sets out cost in fixed and variable which helps in decision making process for the managers.
It also tracks cost by nature I,e direct cost or indirect cost which really give widespread decision to take correctly.
It is to determine the actual cost of production of a product or service as opposed to the overall operations of the entity. This would relate to both direct and indirect costs as every product has cost that to manufacture are needed specifically and then ancillary costs that are required for production but not a direct component or ingredient of the specific product.
You must be able to work out how much the product will cost to make, then take into consideration, the cost of peoples wages, the ones that will be making the product, then there is the cost of advertising, and haulage costs, and of course, you must add on vat, and profit . Hope this helps .
Now I am employed of consulting accounting firm as an information system specialist, I will explain the purpose of an accounting system is providing the information of business timely, when we need to check the financial position of company, we can check the data from where we need, because we maintain all the data in specific manner and in sequence and we record all the accurate data which are relevant of business, so due to this accounting system we can make a good and accurate decision of business, and due to adopting the accounting system external parties such that creditors, investor, taxation authorities and auditors can check required information with out waste of time. Due to accounting system, managers can easily check the position of business where it is stand? Due to good accounting system he can easily find the errors and frauds in the business, and then he can easily rectify it.
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The cost accountant has very important function to perform. Primarily he is responsible for the determination of unit, job and process costs, and for the operation of internal control within the cost accounting department. In his sphere of activity are included not only the ascertainment of costs, but also their presentation and interpretation in the form of cost reports to be presented to the various executives of the enterprise. The advantages of cost accounting summarized in the preceding section show clearly important and valuable information which he must be competent to furnish.
Recording, classifying and summarizing the cost information consist of usual book keeping and clerical work done in the cost accounting department. This work demands accuracy and necessary know and how to handle the office machine and equipment. However this work is mostly of routine nature and can be entrusted to clerks and other junior members of the department.
Analyzing, reporting and interpreting cost is the part of cost accountant's work department an extensive knowledge of costing, considerable background of industrial and business methods. Production processes and a great deal of judgment and skill present and interest cost information to others both in written and spoken form.
