The sustainability and progress of a business cannot be separated from the information system, budget calculations and reporting. To make company operations run smoothly, it is important for business actors to understand the concept of cost accounting , starting from the definition of cost accounting to its application.
Understanding Cost Accounting According to Experts
Before discussing further about cost accounting , it is important for you to first understand the definition of this concept. To make it easier, below is an understanding of cost accounting according to several experts that can be studied.
- Rayburn
According to Rayburn, the definition of cost accounting includes activities aimed at identifying, measuring, analyzing and reporting all elements of a business budget. Both directly related to the company’s production, marketing and production processes.
- Bastian and Nurlela
Bastian and Nurlela define cost accounting as a field of science that concentrates on studying methods of recording, measuring and reporting budget information used during a company’s production process.
- Flat, Foster and Horngren
Datar, Foster and Horngren define cost accounting as a field of science that focuses on how to provide budget information needs and its use by finance and company management.
- Kholmi and Yuningsih
Kholmi and Yuningsih explain the meaning of cost accounting as a series of processes consisting of tracking, recording, allocating and reporting information about various company production budgets after going through analysis.
- Mulyadi
According to Mulyadi, the definition of cost accounting is a process of recording, grouping, summarizing, presenting information on production costs and sales of products and services through certain methods accompanied by analysis.
- foam
According to Schaum, the definition of cost accounting is a procedure that includes recording and reporting measurement results from the production budget for goods and services. This series of activities is carried out with the aim of assessing needs and determining income.
- Abdul Halim
The definition of cost accounting according to Abdul Halim is a field of science that focuses on determining the cost of goods produced ( cost ) to fulfill orders or as merchandise inventory.
- Carter and Usry
Carter and Usry define cost accounting as part of a field of science that focuses on calculating costs and is carried out with the aim of planning, controlling, quality improvement, efficiency and decision making activities.
- RA Supriyono
According to RA Supriyono, the definition of cost accounting is a branch of the science of recording that is used as a management tool to monitor and reduce cost transactions and report information in the form of budget reports.
- Armanto Witjaksono
According to Armanto Witjaksono, the definition of cost accounting is defined as part of management activities in the form of the process of recording and analyzing using tools. The focus of this area is planning and control.
- Hendi Somantri
The definition of cost accounting according to Hendi Somantri is a series of processes consisting of recording, grouping, summarizing and presenting financial reports regarding production and product sales transaction budgets.
- Wikipedia
The definition of cost accounting according to Wikipedia is a part of information systems science that is focused on the process of tracking, recording and analyzing all expenses in the form of manufacturing costs for a product.
Deeper understanding of cost accounting with a conceptual approach and practical practice questions.
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Cost Accounting Function
Did you know that cost accounting has an important role and function in the company’s reporting system? To deepen your knowledge and understanding of this matter, read the following complete review:
1. Determine the Cost or Cost of Goods
One of the functions of cost accounting is to help determine the cost or basic price of goods and services, both produced and sold by the company. The way to determine the budget is through a long series of processes .
The process in question includes recording, grouping, monitoring and summarizing all components of production costs based on historical data. The goal itself is to ensure that the cost of goods is not too high or low in the eyes of consumers.
To calculate the cost of an item, you must first know the total amount of expenses used in the production process. In this way, the cost of the product or service can be calculated.
2. Detail the cost of goods or costs
Not only does it function to determine costs , with cost accounting the basic price of an item can be broken down in detail for each element of production. This is done to anticipate errors.
Through cost accounting, all basic costs are recorded in detail. Starting from the smallest to the largest according to the production elements. That way you can know general and special costs .
If it is known that the calculation of expenditure and basic price of an item is packaged in the budget report correctly and in detail. So you can be sure that there is no error in pricing the product.
3. For data on the budget preparation process
Apart from detailing the cost of goods, cost accounting can also be used as an aid in the production budget preparation process. Not only that, the data collected in these records can be used as basic material.
Without this basic data, of course the recording process cannot be carried out correctly and in detail, and it is certain that budget preparation will be hampered. Therefore, it is important for the implementing party to detail the elements that must be provided complete with the total costs.
Production funds from a budget can be used if there are detailed requirements that are needed and must be purchased for the continuity and smoothness of the product manufacturing process. For example, prices are not listed in the report, then the data is considered incomplete.
4. Basic Information on Cost and Expense Planning
Another function of cost accounting is as basic information for planning duties and expenses. When preparing a budget, of course you cannot be careless, because you must first know the types of expenditure and their distribution.
When making a plan you also need valid and written arguments. The goal is that implementation or action matches expectations. The recording results from cost accounting are used as the basis for this argument.
If all the required data is recorded correctly and in detail in the accounting system, it will simplify the company’s cost planning process. Not only that, through this information you can also find out the amount of liability.
5. Budget Planning and Control
The next cost accounting function is as a basis for budget planning and control. With this field of knowledge, management can monitor and control whether irregularities occur in a production duties report.
With cost accounting, management can also analyze the causes of deviations or differences in the budget report and carry out checks again if necessary.
If there is a difference in the production budget report, management can quickly find out if this indicates an intentional deviation so that the company avoids loss problems.
Types of Cost Accounting
Not only does it have functions, but cost accounting also consists of several types that are important to know and understand, namely as follows:
1. Activity Based Accounting
One type of cost accounting is activity based accounting . The focus of activities in this area is measuring the size of the manufacturing budget and production duties. The goal of this activity is to synchronize the two reports.
If viewed from the explanation above, the application of activity based accounting takes the form of recording activities related to production activities such as expenses and operational costs. The main goal is to find the amount of profit from the product.
2. Standard Cost Accounting
Standard cost accounting is a type of cost accounting that focuses on measuring the efficiency of human resources (HR), production equipment and the company’s production raw material requirements.
As can be clearly seen from the name, this type of cost accounting in its application takes the form of a series of activities for recording all the company’s budget requirements, especially those directly related to the production process.
3. Contribution Margin
The next type of cost accounting is contribution margin . This field focuses on break even point analysis activities . From these activities, it can be seen which product points can bring profits to the company.
The form of implementing this contribution margin is in the form of recording the profits obtained by the company from certain products. Based on the results of the report, management can carry out evaluations to increase or reduce production.
4. Cost Volume Profit
The last type of cost accounting is cost volume profit. As is clear from the name, this field focuses on the recording process to determine the size of the production budget and synchronize it with product volume.
In this recording process, the basic assumption is that the amount of the budget for basic production costs is not experienced by the company, but rather the volume of products that will be changed. The goal is to find the possibility of obtaining additional sources of income.
In order to more easily understand the different types of cost accounting that exist, the Cost Accounting book below can be used as a reference because it provides various realistic case examples that are easy to understand.
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Application of Cost Accounting to Different Types of Business
Talking about the application of cost accounting in companies, it is necessary to understand that each business has a different focus or concentration of activities. Of course, this will affect the amount of data that must be input in the recording process.
Not only that, differences in company activity processes will also have an impact on the method and cycle of cost accounting calculations and the treatment of these duties so that the business can generate profits.
In short, in the accounting cycle, a company’s costs are calculated from the preparation process to determining the cost price. Based on this data, it will later become the basis for information to determine a new policy or decision.
Cost accounting can also be applied with a managerial approach used for decision making.
Implementation of Cost Accounting in Every Company
After understanding the concept of cost accounting starting from the definition, function and types. Next, it is also important for you to learn about its application in companies with different businesses. The reason is, of course you can’t apply it haphazardly.
- Trading Company
Talking about the application of cost accounting in trading companies is generally only within the scope of analysis of product entry and exit. Why is the scope narrow? Because the focus of the business is limited to selling goods, not making them yourself.
If described more specifically, the part of cost accounting that is applied to trading companies includes recording and analyzing certain elements. Examples include promotional accounts, inventory, marketing expenses, discounts and many others.
- Manufacturing company
In contrast to trading companies, the application of cost accounting to manufacturing businesses is more complex. Because the activities carried out in this field are quite long, from manufacturing to distribution.
From the description of this process, the activity data that needs to be included in cost accounting is quite complex. Starting from labor costs, production overhead to raw material prices. With so much data, of course managing bookkeeping requires more effort.
Cost Accounting Objects
It is not enough just to understand the meaning, functions, components and description of their application in the company. Please note that cost accounting has several objects that you must also study, including:
1. Understanding Production Costs
Before discussing further about accounting objects, first understand the meaning of production costs. In short, production costs are a sacrifice that must be paid by the company in terms of money.
In this case, what is meant by production costs includes all expenses from all transactions to process raw materials into a product until it is ready to be sold. The forms themselves vary, from labor costs to factory overhead.
2. Raw Material Costs
Raw material costs are expenses for purchasing materials which will later be processed into a finished product. All these duties are included directly in the production budget calculation.
In grouping these types of materials, several considerations are used. One of them is the ease of the process of converting these materials into a finished product. This is done with the aim of simplifying and speeding up cost calculations.
3. Labor Costs
The next object of cost accounting is labor costs. Not much different from other definitions, these expenses are given to employees in the form of wages or compensation for the performance given to the company.
As is known, employees are people who have an important role in turning raw materials into finished products by exerting their energy. Of course, in return, the company has to incur costs.
4. Factory Overhead Costs
Factory overhead costs or better known as non-direct product costs are a collection of all expenses used to make a finished product. However, the budget for purchasing raw materials is not included in it.
Factory overhead costs themselves consist of two categories. First, fixed FOH, namely duties that must be paid with a definite nominal value for a certain volume level. In contrast to that, the second type is variable where the budget amount can change.
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5. Calculation of Cost of Goods Production
The final cost accounting object is the calculation of the cost of production. In the recording and reporting process there are various components, both fixed and variable, such as raw material duties, labor wages and factory overhead.
However, in its application, sometimes the basic price concept does not always match the company’s needs. This difference gives rise to differences in the treatment of fixed production costs and also has an impact on the calculation and presentation of reports.