Cost accounting
Cost accounting is the branch of accounting that measures, records, and assigns the costs of production, enabling managers to value inventory accurately and support operational decisions.
Also known ascost accountancy
See it move
A four-step flow diagram traces costs through the cost accounting cycle. Raw inputs — direct materials, direct labour, and overhead — attach to each unit during production; completed units then move into inventory carrying their accumulated product cost. When a unit is sold, that accumulated cost is released to the income statement as cost of goods sold. The connectors make explicit that costs follow the physical movement of the product: they attach to each unit, units carry the cost forward, and a sale triggers the expense.
The formula
Variables
- direct materials cost (€)
- direct labour cost (€)
- manufacturing overhead allocated to the unit (€)
The three product cost components that accumulate in work-in-process and finished-goods inventory before expensing as cost of goods sold.
Check yourself
Which statement best distinguishes cost accounting from financial accounting?