Record to report / R2R – General Accounting – Cost Accounting

Our last post on cost accounting can be accessed from the link below:

http://faoblog.com/record-report-r2r-general-accounting-cost-accounting/

What exactly is a cost accounting process?

This process is a major component of normally large manufacturing units. Each unit (or factory), as it manufactures the product that it is designed for, will consume some raw material. There will be a direct cost of the products going into the manufacturing line. Then to maintain that unit, there will be some overheads, like site maintenance, transportation costs, HR costs, accountants, cleaners, a pantry maybe, insurance, and the list is huge.

So, these costs need to be added to arrive at a total cost for a period for a bunch of products produced during that period. A simplified next step would be to allocate this cost based on some logical method (normally the average direct cost of the specific product), to each type of product and then arrive at a per unit cost of each item produced.

All this may sound simple, but it may really not be so simple. Accounting is a historical record of transactions. So a delay in recording may not be so critical. But for ascertaining the total cost of the product, one needs to have live information.

But why live? It is critical for companies to monitor this information on a real-time basis, since the pricing decisions will have to be based out of this. Companies which are unable to monitor this on a real-time basis always run the risk of incorrect sale price for their products.

But can this apply to services?   I will cover this in the next post….

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Have you been following our accounting blog?

http://faoblog.com/category/accounting-core/

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