Every aggressive and forward looking business needs to have a strong focus on cost accounting. Cost accounting is a reflection of the budget and cost of operations. The cost method considers the ”processes” needed to run the business, and a complete analysis of the departments that do the integral steps and what it costs for each step. Additionally cost accounting takes into account the profitability and use of the funds by department and if each department is fulfilling its individual requirements that ultimately make the overall business profitable.
Cost accounting is used by management to provide logic to their decision making process. A manager can determine the profitability of a particular department or product compared to how much it costs to run it or manufacture it. With this information, he/she is able to make a factual decision whether the department, product, etc should remain in the overall business plan, whether it should be phased out, what cuts need to be made to make it profitable, or should it be completely shut down.
Cost accounting removes human emotion that may be associated with a particular instance or decision in a business. Only the costs and profits are calculated. While this helps in an economic way, it excludes any thing that might be in place for personal, professional, or legal issues.
Cost elements that are classically considered include the raw materials of a project, the labor involved with making the product and the expenses that may be incurred throughout the time period of the project.
Considering how much a business tends to spend in fixed costs, and realizing that profits must be made, cost accounting can give you a good picture of what needs to be done to accomplish the goal. You may not even have to raise your prices if you can determine expenses that can be cut. By breaking down the costs associated with each department, you will see what segments of your business are weaker, where they may need strengthening or removal.
Your CFO should be able to outline and explain where you are experiencing your financial problems. Total CFO has the expertise to accomplish this goal for you in an efficient and detailed fashion.
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