What is Cost Accounting Cycle?
The cost accounting cycle involves data recording, classification, overall cost calculation, unit cost determination, sale price determination, cost management, and decision-making.
6 Steps of Cost Accounting Cycle:
The six (6) steps of the cost accounting cycle are as follows:
- Recording cost data
- Classification of cost
- Determination of total cost
- Determination of unit cost
- Determination of selling price
- Cost control and decision making
1. Recording Cost Data:
The 1st step of the cost accounting cycle is recording cost data. Cost accounting first ascertains and records the cost of a product to determine the product’s cost quickly.
2. Classification of Cost:
The 2nd step of the cost accounting cycle is the classification of cost. In this step, cost accounting classifies the cost according to function, nature, and behavior of cost.
3. Determination of Total Cost:
The 3rd step of the cost accounting cycle is the determination of total cost. In this step, cost accounting measures the cost of goods sold for a product.
The cost of goods sold means the amount of all expenditure items incurred for the goods sold in production.
Cost of goods sold = Prime cost+ Factory Overhead + Opening WIP-Closing WIP + Administrative Overhead + Opening Finished Goods – Closing Finished Goods
4. Determination of Unit Cost:
The 4th step of the cost accounting cycle is the determination of per-unit cost. It determines the per-unit cost of a commodity after determining the total cost.
In this step, the business determines the per unit product cost by dividing the cost of goods sold by the total number of units sold.
Per unit Cost= Cost of goods sold/Total number of units sold
5. Determination of Selling Price:
The 5th step of the cost accounting cycle is the determination of the selling price. After determining the per-unit cost of a product, the business determines the selling price by adding the required profit margin.
Selling Price= Cost of Sales+ Profit margin
6. Cost Control and Decision Making:
The 6th and final step of the cost accounting cycle is cost control and decision making. In this step, Cost accounting control costs and decide by using standard costing and budget and budgetary control framework.
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