A cost accounting system is a framework used by firms to estimate the cost of their products for profitability analysis, inventory valuation and cost control.
Estimating the accurate cost of products is critical for profitable operations. A firm must know which products are profitable and which ones are not, and this can be ascertained only when it has estimated the correct cost of the product. Further, a product costing system helps in estimating the closing value of materials inventory, work-in-progress and finished goods inventory for the purpose of financial statement preparation.