Cost Accounting: Dead or more important than ever!

Occasionally, businesses face challenges and the need for cost accounting becomes vital.

By way of illustration, no one could have predicted the crisis that would ensue from the COVID-19 pandemic and the attempts to control the virus’s spread by locking down the economy. Businesses were forcibly shuttered and society came to a practical standstill. Even after the forced lockdown, Governments around the world passed legislation enforcing what is known as “social distancing” in terms of which individuals have to maintain a physical distance from one another, thereby limiting the number of individuals able to be legally physically present within a Business premises.

It is essential to recognize the difference between fixed costs and variable costs, insofar as running costs are concerned.

Running costs are distinguished from Capital outlay, incurred when setting up or even enhancing a business. Knowing one’s Capital outlay is still useful when assessing the return on an investment and depending on a number of factors, there may possibly also be an impact on taxation.

To be brief; fixed costs are the costs normally incurred just to have a presence, such as the payment of rent whereas variable costs fluctuate and may be the cost of having a sufficient variety of goods and services to maintain customers’ expectations and entice their business as well as the actual cost of a particular good or service.

Consequentially, understanding cost accounting is becoming increasingly important. Business Owners need to know not only what it costs to maintain a presence but also how to leverage the various costs to maintain and grow their businesses.

This article is a brief introduction to and summary of a fascinating subject and you should always take professional advice applicable to your particular circumstances. Ismail Ayob and Partners practice Commercial Law and Tax Law and can assist. Please contact Ismail Ayob or Zayd Ismail Ayob for a consultation. Tel: 011 727 5800 Email: advice@iap.co.za