Cost Accounting is NOT Dead!

Mar 16, 2015

I recently was reading a blog post about how cost accounting is dead. This post talked about how all major manufacturing companies, especially Toyota, do not use cost accounting. According to this writer, cost accounting is outdated and only looks at historical costs which you cannot use it to predict the future.

He then went on to say that profit is all that matters! Toyota must meet a target price in the industry and since they know where their profit needs to be, it automatically provides them with their costs.

I do not disagree in target costing you do not have much lead way on your price. However, it does not matter what you need your profit to be if you cannot achieve it. How else can you achieve your profit or make modifications to achieve if you do not know your costs?

Just because they are not calling it costing, doesn’t mean they are not taking the same measures to know their costs.

There are many of the same activities I engage in today that my grandparents did some 60 years ago. I certainly use a different term for many of those actions, but I’m still doing the same thing!

The truth is cost accounting will never be dead. As long as there are businesses looking to sell a product or service for a profit, costing will be needed. Costing can look back and provide a history of what occurred. Costing does also looks forward. You can predict if you will be profitable and make necessary changes to assure you will. You can also make decisions  regarding make versus buy, adding a new product, etc. all of which would be a shot in the dark if you did not know your costs.

We all get lucky and make good guesses. However, do you want to be lucky sometimes or do you want to rest easily having good information. Most people would choose the later and everyone knows or wants to know their costs.

Categories: Cost Accounting