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Historically, cost accounting was originated during the industrial revolution where complexities of running a large scale business led to development of tracking costs. Cost accounting can be viewed as translating the supply chain into financial values. There are four approaches to cost accounting: Activity Based Costing, Standardized Cost Accounting, Throughput Accounting, and Cost Volume Profit Analysis.
Activity Based Costing: Activity based costing refers to a process for assigning costs to product based on the activities of the product.
Standard Cost Accounting: This method breaks down the variation between actual cost and standard costs into different components like labor cost, volume variation, material cost. The goal is to take appropriate action to correct situation.
Throughput Accounting: This method is based on the principle of Theory of Constrain in 1980.
Cost Volume Profit Analysis ( Margin Costing ): This method usually has short-term objective to maximize contribution per unit.
Today, cost accounting is a critical part of health care management. The challenging economic today requires healthcare industry to understand the importance of costs.
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