Question

What is a cost accounting system? Why is a cost accounting system important for a business? A business without a cost accounting system cannot effectively manage its operations. Give an example of how a company you are familiar with costs its products or services.

Answer 1

Definition of a cost accounting system
A cost accounting system (also called product costing system or costing system) is a framework used by firms to estimate the cost of their products for profitability analysis, inventory valuation and cost control.
Estimating the accurate cost of products is critical for profitable operations. A firm must know which products are profitable and which ones are not, and this can be ascertained only when it has estimated the correct cost of the product. Further, a product costing system helps in estimating the closing value of materials inventory, work-in-progress and finished goods inventory for the purpose of financial statement preparation.
Types of cost accounting systems
job order costing
Process costing
In a cost accounting system, cost allocation is carried out based on either traditional costing system or activity-based costing system
Cost accounting system is very important in order to find the profit
To know the cost we are incurring
To reduce the cost
To run the business effectvely