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Cost Accounting

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Cost accounting is the branch of accounting that's responsible for analyzing the contribution margin and breakeven of the cost of the product. Cost accounting can be understood as a discipline of administrative accounting.

When proceeding to determine what is and what is the aforementioned cost accounting is very important that we take into account that it's developed from the use of a series of elements such as the so-called accounting principles. A denomination is under which terms of great importance are included in the sector such as, for example, economic goods that are the set of goods (material and intangible) that have an economic value and, therefore, can be valued in monetary matter

The accrued, the currency counts, the exercise, the materiality or the equity are other of those principles that are fundamental within the scope of the accounting and, therefore, also in the modality that concerns us.

And all this without forgetting the set of types of existing costs that can be classified based on their modality or the assignment made to an object. This last section would include the indirect ones, which can't be distributed objectively among the products, and the direct ones that can be distributed objectively.

Typically, cost accounting allows the preparation of financial statements with a view to the short term. The smallest number of units that a manufacturer must develop and market for a profit equal to zero is known as a breakeven point: this means that, at that point, total costs equals total sales revenue. From then on, the company obtains benefits.

Take the example of making a television. If the manufacturer must spend $ 100 on raw materials and $ 200 on the salary of the workers needed for production, the cost of a television reaches $ 300. This company, therefore, won't be able to sell the TV below that amount since, otherwise, it would lose money. This type of analysis is part of the orbit of cost accounting.


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