Final answer:
The process is known as cost accounting and it's crucial for determining the cost of production and making profitable business decisions using cost benefit analysis and considering both fixed and variable costs.
Step-by-step explanation:
The process of identifying and combining all of the costs involved in manufacturing a product or providing a service is known as cost accounting. This practice is essential for businesses as it helps in determining the cost of production, which involves both fixed and variable costs. By utilizing mathematical models, businesses can estimate costs associated with materials, fabrication, manufacturing, operation, and maintenance. The estimations aid in understanding the science behind techniques and their implementation costs. Consequently, cost benefit analysis is employed to weigh the costs against the anticipated benefits, thereby assisting businesses in making informed decisions that maximize profits.
It is important to normalize these costs to compare them properly with other options. For instance, the cost per thousand gallons of water can provide a standardized measure for comparison in some industries. Moreover, cost accounting practices also factor in long-run perspectives and market structures for making strategic decisions about pricing and production quantity.