What Is Cost Accounting?
Cost accounting is a facet of accounting that focuses on capturing a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense. This branch of accounting is instrumental for internal management to make informed business decisions, particularly in managing and reducing costs.
Key Concepts in Cost Accounting:
- Direct Costs: These are expenses that can be directly traced to the production of specific goods or services, such as raw materials and labor.
- Indirect Costs: Unlike direct costs, indirect costs cannot be traced back to a specific product. Examples include utilities, rent, and administrative expenses.
- Fixed Costs: These costs do not fluctuate with the level of production or sales. Examples include rent, salaries, and insurance.
- Variable Costs: Variable costs vary directly with the level of production. This includes costs like raw materials and some utilities.
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