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Welcome to our lecture
on cost accounting,
a cornerstone of
managerial accounting
that empowers internal
decision making.
Cost accounting goes
beyond recording
financial data for
external reporting.
It provides managers
with timely,
detailed and relevant cost
information to support planning,
directing and controlling
within an organization.
Cost accounting determines
what it costs to
produce a product or
operate a department,
helping managers set prices,
manage resources efficiently,
and improve profitability.
Unlike financial accounting,
cost accounting is tailored to
each business's practical needs.
Before discussing how
costs are tracked,
it is important to understand
different types of costs
and their behaviors.
Costs can be classified as
direct or indirect
product or period,
and as variable, fixed or mixed.
Direct costs like raw
materials and assembly labor
are easily traced to a product,
while indirect costs,
such as factory rent or
supervision are
manufacturing overheads
and must be allocated.
These distinctions are essential
for internal analysis,
including break even and
budgeting exercises.
Cost accounting systems
assign costs to products
or services using
two main approaches,
job order costing
and process costing.
Job order costing suits
businesses producing
unique products or
custom services like
bespoke furniture or
consulting projects with costs
tracked by job or batch for
tailored pricing and
profitability analysis.
Process costing is
used by businesses
producing large volumes
of identical items,
