Current Trends in Cost Accounting

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  • 0:05 What Is Cost Accounting?
  • 0:52 Importance of Cost Accounting
  • 2:11 Trends in Cost Accounting
  • 4:40 Lesson Summary
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Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

This lesson looks at the accessibility and trends of cost accounting. Cost accounting has developed as technology has become cheaper and more plentiful. Bookkeeping is a practice of the past, while trends in cost accounting continue to develop.

What Is Cost Accounting?

Computers are faster than ever, easier to use, and more accessible. That means we can track what comes in and goes out of our business, barely lifting a finger. Thankfully, our computers do most of the work. Remember, we have to track costs before we can reduce costs, make smart investments, and gain profit. The discipline that helps us do this is called cost accounting. So, what exactly is cost accounting?

Cost accounting is a type of management that monitors a company's budget by tracking cost information. There are several types of costs that can be measured. Examples are fixed and variable, marginal and actual, and direct and indirect. Let's look at a medium size company named Flipper Boats and see how they are tracking costs.

Importance of Cost Accounting

Galaxy has the computer hardware to process large quantities of data and the software available to do a lot of detailed cost analysis quickly. The primary stimulus for the growth in cost accounting is the development of information technology. With technology readily available, companies that are large and small have access to the same cost accounting methods.

With these advancements, companies automatically collect and measure data on raw materials, labor costs, and overhead with little to no investment. It's not surprising that all types of companies use cost accounting. Industries vary, ranging from education, manufacturing, and transportation to healthcare and personal services.

Let's look at an example of why cost accounting is so important. Tracking automated manufacturing environments is much easier than monitoring labor data. Machines are automatically monitored by computer systems. People, on the other hand, are monitored by other people, which takes a lot of time and manpower.

Flipper Boats was looking to either outsource the painting of the company's smaller boats or invest in automating it. The company monitored direct costs, which included labor and raw materials, through cost accounting for a year. This gave the company the information it needed to make the decision to automate. Labor costs were much higher than investing in new machinery.

Trends In Cost Accounting

There are five current trends in cost accounting. Let's look at an example of each:

Just-in-time inventory is the first trend we will discuss. It focuses on reducing inventory costs by keeping only what inventory you need available when you need it. The importance of cost accounting to this type of inventory system is that businesses must be able to forecast consumer demand. Let's look at Flipper Boats. Cost accounting helps Flipper Boats find the most reliable and cost efficient suppliers of raw materials when they are needed. After all, the company continuously tracks supplier data. This makes it easier to find profits when inventory and demand fluctuate.

Predictive cost accounting is a second trend in cost accounting. Having detailed information about what the current working environment is costing a company will help managers predict future costs and why those costs are rising or falling. Flipper Boats, for example, has been purchasing its upholstery work from Brilliant Vinyl. Over the past two years, costs have doubled. The company decided to move to a new vendor because it didn't see the leaps in annual costs slowing down.

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