Cost accounting

Meaning

Cost accounting (محاسبة التكاليف) breaks costs down to the thing being sold: a product, a batch, a contract or a project. Direct costs, the materials and the labour that go into it, are traced to it; indirect costs, such as factory rent, power and supervision, are shared out over the units on a reasonable basis such as machine hours or labour hours. The result is a cost per unit or per job that can be set against its price.

It answers questions the general books cannot: which product loses money, what the break-even volume is, whether a contract is running over budget, what a price must be to cover costs. Methods differ by business: job costing for contractors and workshops, process costing for continuous production, standard costing compared with actual cost to find variances. In an ERP, production orders, project budgets and inventory valuation carry it day to day.

Also called: costing · product costing · job costing · محاسبة التكاليف

Example

A furniture workshop makes 200 desks in October. Wood and fittings cost 36,000.00, the carpenters' wages 18,000.00, and the workshop's rent and power 10,000.00 shared by labour hours. Each desk costs 320.00 (64,000.00 ÷ 200); sold at 450.00, it earns a gross margin of 130.00.