Cost accounting is mostly used by manufacturing industries and businesses.

Although it is a branch of Accounting it is different from financial accounting. 

Don't worry if you don't know much about cost accounting.

We will discuss more in this blog so keep reading. 

Let's get right to it then.


Table Of Contents:

  • What Is Cost Accounting?

  • Cost Accounting Vs. Financial Accounting

  • Types Of Cost Accounting

  • History Of Cost Accounting

  • Frequently Asked Questions

  • Conclusion

What Is Cost Accounting?

Cost accounting is a branch of accounting used mostly by manufacturing industries to determine the total cost incurred by the company throughout the production process.

It deals with the various types of costs like variable costs, fixed costs, opportunity costs etc.

The main purpose of cost accounting is to ascertain the correct value incurred and accordingly set up the selling price of the product.

Cost Accounting Vs. Financial Accounting

Cost accounting is done for the understanding and working of the internal management of the company whereas financial accounting is done to prepare financial statements and to attract outside investors.

Cost accounting derives the value of the cost of different types of stock and financial accounting uses these values to determine the financial position of the company.

Types Of Cost Accounting

1. Standard Costing

It is the practice of substituting the actual cost figures with expected figures in the records.

It is used for practices like FIFO and LIFO.

2. Activity-Based Costing

Activity-based costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.

The ABC system of cost accounting is based on activities, which are considered any event, unit of work, or task with a specific goal.

3. Lean Costing

Lean Management is a process for measuring, understanding, and improving the flow and interactions of all related tasks in order to keep the cost, service and quality of an organization's products and services as competitive as possible.

4. Marginal Costing

Marginal cost refers to the increase or decrease in the cost of producing one more unit or serving one more customer.

It is often calculated when enough items have been produced to cover the fixed costs and production is at a break-even point, where the only expenses going forward are variable or direct costs.

History Of Cost Accounting

Cost accounting has been around for ages. It’s the best way for businesses to keep track of their costs.

Cost accounting can be traced back to the industrial revolution. Over the years it became more complex and is now known as cost accounting of the modern day.

Frequently Asked Questions

1. What is cost accounting used for?

Cost accounting is primarily used to ascertain the total cost incurred during the manufacturing of a product.

2. What are the advantages of cost accounting?

Elimination of waste and losses, Cost reduction, Cost and selling price fixation, Advice to make and buy decisions, Cost control, Identify the reasons for profit or loss.

3. How difficult is cost accounting?

Cost accounting is not difficult due to the advancement and technologies and regular updating of policies and efficient manner of work carried out by an organization.

4. What are some drawbacks of cost accounting?

Costs of products keep on fluctuating and hence the comparison is difficult, financial expenses are not included in cost accounting, cost is ascertained on the assumption of full capacity.

5. How does cost accounting differ from traditional accounting methods?

Cost accounting focuses solely on the cost aspect of the company and hence does not take financial costs into consideration.

Conclusion

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