written by | April 11, 2022

Know All About Cost Accounting

The terms costing and cost accounting are significantly different from each other. Costing simply implies finding the cost of a product by following a certain procedure. The Chartered Institute of Management Accountants (CIMA) has defined costing as the strategies and procedures of discovering the cost of a product. On the other hand, cost accounting is a process of recording the total income and preparing periodical reports to assist the management in order to make decisions on allocating budget for various operational tasks of a company. Historians think that cost accounting was originally introduced during the industrial revolution when the new global supply and demand economics prompted manufacturers to begin tracking their fixed and variable costs to automate their production related operations. By the early 20th century, cost accounting had become an extensively studied subject in the literature of corporate management.

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The administration can use cost accounting internally to make fully informed business choices. Unlike monetary accounting/costing which supplies information that is financial, cost accounting as a whole is not required to stick to set requirements, and those requirements can be flexible to meet the operational and production related needs of the company.

Meaning of Cost Accounting

Cost accounting can be termed as classifying, tracking, and allocating budget for rendering services, product production and presenting organised information to assist management. It also determines the price of every order given by its customers, processes involved in fulfilling the order, product manufactured in the company, or service that is offered. Cost accounting is employed by an organisation's internal management group to identify all fixed and adjustable costs associated with the production of a product. It will initially capture all this information separately, then compare by inputting costs to output results in order to facilitate overall calculation of the costs involved in each process. This will enable the higher management to aid in making future business choices.

Also Read: Know the Basics of Managerial Accounting

Main Targets of Cost Accounting

  • To determine the price per unit of the product from a company perspective.
  • To supply adequate reports that are accurate in terms of each step involved in producing a product and various costs involved.
  • To disclose wastage of resources that includes time, money, and the usage of various equipment.

Difference Between Cost Accounting and Financial Accounting

Here are the notable differences between these two branches of accounting:

  • Cost accounting refers to a particular branch of accounting where it takes care of keeping a record of the costs involved in each stage of manufacturing a product in a company. On the other hand, financial accounting keeps a record of all the financial data of a company, therefore clearly projecting the financial position of the organisation.
  • Information gathered during the cost accounting process can be used to keep a close monitor of all kinds of operations of a company, and the reports generated at the end of each month can be used for maximising profit and the overall efficiency of an organisation. On the contrary, financial accounting gathers all financial results for a particular accounting period and the current position of all the assets and the liabilities of the organisation during that accounting period.
  • Only the people who are involved in the internal management of an organisation can conduct cost accounting related activities. Whereas, people who are in the internal and external management of an organisation can do financial accounting related activities.

Types of Cost Accounting

Various types of cost accounting are as follows:

Marginal Costing

Marginal costing is employed to learn the influence of variable costs involved from the level of output or manufacturing of a product. Break-even analysis is an integral component in this costing methodology. The contribution of financial data from every division is a foundation critical to learning the profitability of a product. Marginal costing is the base to evaluating the stock of finished products and products that are still in the manufacturing process. Semi-fixed costs are additionally converted either as fixed costs or as adjustable prices of a product. Actually, the cost of a product is determined by both fixed and variable costs.

Also Read: Everything You Need to Know about Inventory Costing Methods

Standard Costing

The first standard price computed is counted as standard costing. It is then compared with the actual price of a product. It assists in managing expenses, budget planning of an organisation, and so on.


Cost accounting addresses assessing and calculating prices and expenses to buy raw material and other aspects involved in manufacturing a product. It also pertains to calculation per product expense using different cost accounting techniques. Cost accounting is a functional system of recording and analysing the cost of services or products so that you can contribute towards strategic planning and enhancing the overall performance of the product. We hope that the details of this article would have given you a clear overview of the same.

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Q: Explain the classification and analysis of cost accounting about cost production?


Cost accounting helps to analyse and classify different components of the price incurred during the manufacturing cycle of each product of a company. Factors that can be taken into consideration include materials used for manufacturing, time taken to manufacture, labour costs, transportation costs and so on.

Q: What is the need for cost accounting?


The crucial need of cost accounting is to determine the price at which each product of a particular organisation is sold in the market.

Q: What is the definition of cost accounting?


The Institute of Cost Accountants has defined Cost Accountancy as the application of costing and value maxims that are involved in calculating and processing of financial information in order to consistently maintain price control and ascertainment of profitability. It also involves the presentation of data for the purpose of managerial decision making.

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