Cost Analysis – Accounting Homework Help

Cost analysis can be illustrated as a method of evaluating the different elements of costs that make part of a product or service to determine if they are directly or indirectly related to the product or service and reasonable. The several elements of costs involve the cost of raw materials, labor, supplies, direct overheads, and an allocation or apportionment of indirect costs to the product or service on a consistent and scientific way. The reasonableness of the costs can be ascertained by analyzing if the costs are allowable to the product or service. 

The meaning of Cost Analysis it is analyzing that the costs are logically needed or related to the manufacturing of the product or rendering of the service. Reasonableness as well means applying the test to ascertain if costs incurred are like a prudent business would pay in a competitive marketplace.

It basically includes three steps that are as follow:

1. Verifying the accuracy of cost information

2. Determining the requirement of the costs incurred

3. Application of scientific and standard overhead rates for allocation of indirect costs

Since with any analysis, reporting the findings and taking suitable corrective actions, where essential, is the final outcome of the cost analysis process.

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