Cost Accounting Solved Problems

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For example, do you know what it costs you if your customer always orders at the end of the month rather than throughout the month?

Pretty much the only thing that can be calculated are inventory costs, and even these are usually flawed (see The Hidden and not-so-hidden costs of Inventory).

Accounting is one of the cornerstones of the modern economy.

Cost accounting in particular helps in decision making with the goal to maximize profit. Unfortunately, cost accounting usually does a really poor job of capturing the essence of manufacturing in general and lean manufacturing in particular.

He was merely interested in the cost and quantity of the raw materials, the value and quantity of the finished goods, and the expenses for the craftsman.

And that is even nowadays still a fitting description of the relation between manufacturing and cost accounting.

Cost accounting aims to understand the cost of the products or services of the company. It uses a number of different KPI, based on input values like direct labor cost, direct material cost, sales price, quantity, overhead ratio, etc.

Ideally, cost accounting helps managers decide where to invest and where to save money.

Merchants contracted craftsmen for creation of products.

They provided the craftsman with raw materials, and often also with the tools and even the workshop, and the craftsman labored for the merchant.


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