Cost-Based Accounting

Calculate the true costs of your business decisions and activities with cost-based accounting
By Sharon Cullars, Freelance Writer Cost accounting information lets you assess the true costs, including indirect and hidden costs, of business decisions in terms of materials and human resources. With a true estimate, you can determine the profitability and possible dollar risk of any proposed alternative and arrive at the best course to take. If your company is small to mid-sized, you may choose to assess expenditures through basic cost-based bookkeeping or a cost accountant. Larger companies may opt for cost accounting software.
 

There are typically 4 approaches to cost accounting: standardized cost accounting, activity-based costing, throughput accounting and marginal costing. Each approach has control variables against over- or underestimations and was established over time as modern company processes and expenditures became more complex. Cost correction is done through a variance analysis, which compares actual costs to standard costs for components such as material and labor costs.

Choose among various cost-based accounting solutions to better estimate and plan your business decisions:

1. Find a bookkeeper or accountant with experience in cost accounting.

2. Get comprehensive cost accounting software.

3. Research information about cost-based accounting.

Find an expert in cost accounting

Retaining the service of a cost accounting expert is one option to help assess actual costs that will allow you to make profitable business decisions. Find either a certified public accountant or certified bookkeeper through referral services or associations. As with any professional whose services you retain, be sure to get references to guarantee competency.
Try: The National Association of Certified Public Bookkeepers refers you to certified bookkeepers within your state. It maintains a database of bookkeepers with requisite skills and licensing. Most bookkeepers should know the basics of cost accounting, but always get references. AccountantsFinder.com provides a database of certified public accountants by state. It can suggest accountants that are experts in cost management to help you make informed business decisions.

Buy cost accounting software that supports the various accounting methods

Good cost accounting software provides you with alternative methodologies. Multiple options offer flexibility and can maximize profitability.
Try: Infor's Visual Enterprise supports both actual and standard costing methods as well as offering activity-based costing. Acorn Systems also provides Activity Based Costing and Management as well as a Cost-to-Serve module that allows you to analyze end-to-end supply chain costs. This maintains costs for those who deliver value-added services.

Educate yourself and your staff about cost-accounting

Take advantage of online tutorials and seminars to educate you and your staff about cost accounting methods. Then decide which methods work well with your business accounting needs.
Try: Harvard Business Publishing provides an online tutorial introducing you to cost accounting systems. The tutorial includes information about cost system designs and their variations; concepts about direct and indirect costs; and how costs are assigned. You can enroll online. Another online resource is Train Up.com's cost accounting decisions training class that explains the basics of cost accounting to business managers.

• If you choose to provide information about cost-accounting to employees in house, consider full online courses (not just tutorials). Some offer certification as well.