Definition of Cost Accounting According to Experts, Functions, and Types

Cost Accounting – The continuity and progress of a business cannot be separated from information systems, budget calculations and reporting. To expedite the company’s operations, it is important for businesses to understand the concept of cost accounting , starting from the notion of cost accounting to its application.

Definition of Cost Accounting According to Experts

Before discussing further about cost accounting , it is important for you to first understand the definition of the concept. For convenience, here is a definition of cost accounting according to several experts that can be studied.

  • Rayburn

According to Rayburn, the notion of cost accounting includes activities aimed at identifying, measuring, analyzing and reporting all elements of a business budget. Both are directly related to the production process, marketing and company production.

  • Bastian and Nurlela

Bastian and Nurlela define cost accounting as a field of knowledge that concentrates on studying the methods of recording, measuring and reporting budget information used during the company’s production process.

  • Datar, Foster and Horngren

Datar, Foster and Horngren define cost accounting as a field of science that focuses on how to provide budgetary information needs and their use by the finance and company management departments.

  • Kholmi and Yuningsih

Kholmi and Yuningsih explain the meaning of cost accounting as a series of processes consisting of tracking, recording, allocating and reporting information about various company production budgets after going through analysis.

  • Mulyadi

According to Mulyadi, the notion of cost accounting is a process of recording, grouping, summarizing, presenting information on production duties and selling products and services through certain methods accompanied by analysis.

  • Schaum

According to Schaum, the definition of cost accounting is a procedure that includes the recording and reporting of measurement results from the budget for the production of goods and services. A series of activities are carried out with the aim of assessing needs and determining income.

  • Abdul Halim

The definition of cost accounting according to Abdul Halim is a field of science that focuses on determining the cost of goods produced ( cost ) to fulfill orders or as merchandise inventory.

  • Carter and Usry

Carter and Usry define cost accounting as part of a field of science that focuses on calculating costs and is carried out with the aim of planning, controlling, quality improvement, efficiency and decision making activities.

  • RA Supriyono

According to RA Supriyono, the notion of cost accounting is a branch of record keeping that is used as a management tool to monitor and suppress transaction costs and report information in the form of budget reports. 

  • Armanto Witjaksono

According to Armanto Witjaksono, the definition of cost accounting is defined as part of management activities in the form of recording and analysis processes using tools. The focus of the field is for planning and control.

  • Hendi Somantri

The definition of cost accounting according to Hendi Somantri is a series of processes consisting of recording, grouping, summarizing and presenting financial reports regarding production transaction budgets and product sales.

  • Wikipedia

The definition of cost accounting according to Wikipedia is that part of information systems science that is focused on the process of tracking, recording and analyzing all expenses in the form of the cost of making a product.

You can also find a deeper understanding of cost accounting with a conceptual approach and practice practical questions in the Theory and Implementation Cost Accounting book below.


Cost Accounting Function

Did you know that cost accounting has an important role and function in the company’s reporting system? to deepen your knowledge and understanding on this subject, read the following full review:

1. Determine Cost or Cost of Goods

One of the functions of cost accounting is to help determine the cost or cost of goods and services, both produced and sold by the company. How to determine the budget through a series of long processes that can be studied through the book Cost Accounting: Theory & Its Application .

The process in question includes recording, grouping, monitoring and summarizing all components of production costs based on historical data. The goal itself is that the cost of goods is not too high or low in the eyes of consumers.

To calculate the cost of an item, you must first know the total amount of expenses used in the production process. That way the cost of the product or service can be calculated.

2. Detailing the Cost of Goods or Cost

Not only serves to determine the cost , with cost accounting the cost of an item can be broken down in detail from each element of production. This is done in anticipation of errors.

Through cost accounting, the recording of all cost of goods is made in detail. Starting from the smallest to the largest according to the elements of production. In this way, general and special costs can be identified .

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If it is known that the calculation of expenses and the cost of an item that is packaged in the budget report is correct and detailed. Then it can be ensured that there is no mistake in pricing the product.

3. For Budgeting Process Data

In addition to detailing the cost of goods, cost accounting can also be used as an auxiliary tool in the production budget preparation process. Not only that, the data collected in the records can be used for basic materials.

Without this basic data, of course the recording process cannot be made correctly and in detail, and it is certain that the preparation of the budget will be constrained. Therefore, it is important for the implementer to detail the elements that must be provided complete with the total cost.

Production funds from a budget can be used if there are detailed requirements needed and must be purchased for the continuity and smoothness of the product manufacturing process. For example the price is not listed in the report, then the data is considered incomplete.

4. Basic Information on Cost and Expense Planning

Another cost accounting function is as basic information for planning fees and expenses. In compiling a budget, of course you cannot be careless, the article must first know the types of expenditure and their distribution.

When making a plan also requires valid and written arguments. The goal is that when the implementation or action is in line with expectations. The results of the recording of cost accounting are used as the basis for this argument. 

If all the data needed is recorded correctly and in detail in the accounting system, it will simplify the company’s cost planning process. Not only that, through this information, the amount of dependents can also be known.

5. Budget Planning and Control

The next cost accounting function is for the basis of budget planning and control. With this field of knowledge, management can monitor and control whether deviations occur in a production duty report, which Sinaumed’s can learn more about in Cost Accounting, Edition 2 .

With cost accounting, management can also analyze the causes of irregularities or discrepancies in budget reports and re-check if necessary.

If there is indeed a discrepancy in the production budget report, then management can quickly find out if it indicates an intentional deviation so that the company avoids loss problems.


Types of Cost Accounting

Not only has a function, but cost accounting also consists of several types that are important to know and understand, which are as follows:

1. Activity Based Accounting

One type of cost accounting is activity based accounting . The focus of activities in this field is to measure the amount of the manufacturing budget and production costs. The goal of the activity is to synchronize the two reports.

If viewed from the explanation above, the application of activity based accounting is in the form of recording activities related to production activities such as expenses and operational costs. The main goal is to find the amount of profit from the product.

2. Standard Cost Accounting

Standard cost accounting is a type of cost accounting that focuses on measuring the efficiency of human resources (HR), production equipment and the raw material needs of a company’s production.

It is clear from its name, this type of cost accounting in practice is in the form of a series of recording activities for all the needs of the company’s budget, especially those directly related to the production process.

3. Contribution Margins

The next type of cost accounting is contribution margin . This field focuses on break even point analysis activities . From these activities it can be seen which product points can bring profits to the company.

The form of application of this contribution margin is in the form of recording the profits obtained by the company from certain products. Based on the results of these reports, management can evaluate in order to increase or reduce production.

4. Cost Volume Profit

The last type of cost accounting is cost volume profit. It is clear from its name, this field focuses on the recording process to determine the amount of the production budget and synchronize it with product volume.

In this recording process, the basic assumption is that the amount of the budget for the cost of production is not experienced by the company, but the volume of the product to be changed. The goal is to find the possibility of obtaining additional sources of income.

In order to more easily understand the different types of cost accounting that exist, the Cost Accounting book below can be used as a reference because it provides various realistic case examples so they are easy to understand.

Application of Cost Accounting in Different Types of Business

Talking about the application of cost accounting in companies, it is necessary to understand that every business has a different focus or concentration of activities. Of course this will affect the amount of data that must be inputted in the recording process.

Not only that, differences in the process of company activities will also have an impact on the methods and cycles of calculating cost accounting and the treatment of these duties so that the business can generate profits.

In short, in a company’s cost accounting cycle is calculated from the preparation process to determining the cost of goods. Based on these data that will later become the basis of information to determine a new policy or decision.

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Cost accounting can also be applied to a managerial approach used for decision making, as discussed in the book Cost Accounting in a Managerial Perspective .

Application of Cost Accounting in Every Company

After understanding the concept of cost accounting starting from the understanding, functions and types. Next, it is also important for you to learn about its application in companies with different businesses. The reason is, in applying it certainly should not be arbitrary.

  • Trading Company

Talking about the application of cost accounting in trading companies is generally only within the scope of the analysis of product entry and exit. Why is the scope narrow? Because the focus of the business is limited to selling goods, not making it yourself.

If described more specifically, the cost accounting section applied to trading companies includes recording and analysis of certain elements. Examples include promotional accounts, inventory, marketing expenses, discounts and many others.

  • Manufacturing company

In contrast to a trading company, the application of cost accounting in a manufacturing business is more complex. Because the activities carried out in this field are quite a long process, from manufacture to distribution.

From the description of the process, the activity data that needs to be included in cost accounting is quite complex. Starting from labor duties, production overhead to raw material prices. With so much data, of course to manage bookkeeping requires more effort.

Example of a Cost Accounting Book

Are you interested in learning about the branch of record keeping, especially in the field of cost accounting. If so, you can look for additional references through various sources, one of which is the Cost Accounting book by Prof. Dr. Dermawan Sjahrial, MM. et al.

The book contains a complete explanation of cost accounting and its application in various companies with different types of business. However, it is more focused on manufacturing businesses that focus on processing raw materials into finished products.

Book by Prof. Dr. Dermawan Sjahrial, MM. et al, is one of the most recommended reading sources. To get it is quite easy, you can buy it online or directly to offline stores. The price is also relatively cheap.

Thus a complete review of cost accounting , starting from the definition of cost accounting , functions, types to an overview of its application in various companies.

You can also see a collection of best seller cost accounting books .

The following are recommendations for various accounting books from sinaumedia.

Cost Accounting Objects

It is not enough just to understand the meaning, functions, components and description of their application in the company. Please note that cost accounting has several objects that you must learn as well, which include:

1. Definition of Production Costs

Before discussing further about accounting objects, first understand the meaning of production costs. In short, production cost is a sacrifice that must be incurred by the company in units of money.

In this case, what is meant by production costs includes all expenses from all transactions to process raw materials into a product until it is ready for sale. The forms themselves vary, ranging from labor costs to factory overhead.

2. Cost of Raw Materials

Raw material costs are expenditures to purchase materials that will later be processed into a finished product. All of these duties are entered directly into the calculation of the production budget.

In classifying the types of materials using several considerations. One of them is the ease of converting the material into a finished product. This is done with the aim of simplifying and speeding up cost calculations.

3. Labor Costs

The next object of cost accounting is labor charges. Not much different from other definitions, these expenses are given to employees in the form of wages or returns on performance given to the company.

As is well known, employees are people who have an important role in turning raw materials into a finished product by exerting their energy. Of course, in return, the company has to pay a fee.

4. Factory Overhead Costs

Factory overhead costs or better known as non-direct product duties are a collection of all expenses used to make a finished product. However, the budget for purchasing raw materials is not included in it.

Factory overhead costs fall into two categories. First, fixed FOH, namely duties that must be issued with a definite nominal value for a certain level of volume. In contrast, the second type is variable where the amount of the budget can change.

5. Calculation of Cost of Production

The last object of cost accounting is the calculation of the cost of production. In the process of recording and reporting there are various components, both fixed and variable such as raw material fees, labor wages and factory overhead.

But in its application, sometimes the concept of cost of goods is not always in accordance with the needs of the company. This difference causes differences in the treatment of fixed production costs and also has an impact on the calculation and presentation of reports.

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