What is a Cost Accounting System and What Can It Do for Your Company?
As a business grows and the number of orders increases, keeping tabs on your product lines and overall costs becomes harder. Having an insufficient understanding of these costs and other financial data can result in losses, hindering companies from reaching their goals. To effectively keep track of all of these, having an efficient accounting system is a significant upgrade for daily accounting operations.
If you are unsure what a cost accounting system is and how it can help your business, here is a quick rundown of the main concepts you need to know on the topic.
What is Cost Accounting?
Before tackling what cost accounting systems are, you need to understand what cost accounting is first.
There are multiple technical ways to define cost accounting. In essence, however, it refers to a form of accounting that aims to calculate the overall costs that a company incurs for multiple purposes, including inventory valuation, profitability analysis, and cost control.
Knowing the costs of production is essential to company management. Without them, it becomes significantly harder to make smart business decisions. Some of which include continuing product lines and trimming manufacturing costs.
What is a Cost Accounting System?
A cost accounting system is a framework that helps designated employees keep tabs on materials as they go through the entire production process. It is also called a product costing system, or simply a costing system.
It is commonly used in the manufacturing industry, where multiple production lines happen at once. That said, this system is also applicable to other industries, such as services.
How Does It Work?
To paint a detailed picture of how costing systems work, consider a manufacturing company. In production, raw materials go through different kinds of processes before it converts into a final product. In each stage, cost accounting tracks and updates its status in a computerized system. For example, raw materials that go into production are credited from the raw materials account and debited into the goods-in-process account.
Product managers can monitor the manufacturing process from start to finish by accessing this system. Meanwhile, cost accountants will take note of production costs. Using the cost accounting system, both will have a good grasp of the inventory and the costs that go into a product.
How Can It Benefit Your Company?
Installing a cost accounting system takes a lot of work, but it has a big payoff. Some of its benefits include:
Ascertaining Costs and Selling Price
Determining the true production cost of an item is difficult, but with the costing system’s help, cost accountants can come up with more accurate numbers. Compiled with other data, you can determine a reasonable selling price while maximizing the profit. While selling prices highly depend on market conditions, you can still make a good estimate based on data gathered by cost accountants, among others.
Cost Control and Cost Reduction
With a product accounting system, you have an efficient tool that can help determine where the money flows and goes. It becomes easier to pinpoint successful products, unprofitable product lines, and parts of the manufacturing process that need trimming.
Bear in mind that cost reduction does not necessarily mean decreasing the quality of your products. Cost accounting can simply help you point out parts of the process that can be removed while ensuring your products’ quality.
Data-Driven Decision-Making
Making business decisions without data is like navigating a foggy sea without a compass. Accurate data fuels strong businesses, and a cost accounting system can help give you that. With a solid grasp of the costs of expenditures, project revenues, and profits, company management will have more tools that can help them make smart business steps.
Effective in Just-In-Time Inventory Systems
A just-in-time inventory system refers to a process where companies only reorder supplies (like raw materials) on an as-needed basis. Having a costing system can help you determine just how much you need to complete a product and help you avoid ordering too many materials. Consequently, you will also be saving on storage and security from having to stock supplies.
Based on these benefits, it becomes clearer how cost accounting systems can play a crucial role in the daily operations of several companies. If you are considering acquiring one for your business, you must install software that matches both industry and company needs. In that regard, ANSI will be more than happy to assist you.
With more than 30 years of service and dozens of happy clients under its belt, ANSI has the experience, tools, and products that can help boost your company’s cost accounting processes. Choose only the best systems provider for your company, and acquire the right costing system that can take your business to the next level.
