20. Cost Accounting Basics – Types of Costs
Cost accounting is essential for effective financial management in businesses, helping managers plan and control costs effectively. Understanding the various types of costs, including fixed, variable, direct, and indirect, is crucial for decision-making, especially in fields like computer science where budgeting and cost estimation are integral. This chapter emphasizes the importance of cost classification for improved budgeting, pricing strategies, and profitability analysis.
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What we have learnt
- Cost accounting is a key component in financial management, facilitating effective decision-making.
- Understanding and classifying costs by nature, behavior, function, and relevance aids in strategic business planning.
- Cost classification is fundamental for tasks such as budgeting, pricing, and profitability analysis.
Key Concepts
- -- Cost Accounting
- The process of recording and analyzing costs related to specific products, services, or processes for internal stakeholders.
- -- Direct Costs
- Costs that can be directly attributed to a specific product or service, such as raw materials.
- -- Indirect Costs
- Costs that cannot be traced directly to a singular product or service, often referred to as overheads.
- -- Fixed Costs
- Costs that do not change with production output in the short term.
- -- Variable Costs
- Costs that vary directly with the level of production.
- -- Opportunity Cost
- The benefit that is foregone when choosing one alternative over another.
- -- Sunk Cost
- Costs that have already been incurred and cannot be recovered.
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