Management accounting includes a lot of aspects of business such as decision making, strategizing, planning, performance management, risk management, etc. On the other hand, cost accounting only revolves around cost computation, cost control, and overall cost reduction of business. In simple terms, cost accounting is one of the subsets of management accounting. As a result, the scope and reach of management accounting are much broader and more pervasive than cost accounting. So, we can say that management accounting can provide a helicopter view of the business by looking at each aspect qualitatively and quantitatively. On the other hand, cost accounting only gives a pixel view of the cost of each product, service, or process. You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to
be Hyperlinked In this article, we discuss Cost Accounting vs Management Accounting in detail – Cost Accounting vs Management Accounting [Infographics]There are many differences between cost accounting vs. management accounting. Let’s glance at these distinctions. You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked Now that we look at a snapshot of Cost Accounting vs. Management Accounting’s key differences, let us understand them in detail. What is Cost Accounting?Cost accounting comes down to “cost” and “accounting.” So first, let’s understand what “cost” is. Then we will look at “accounting.” What is “cost”?Cost is an expense incurred by a particular unit. In another way, the cost is what the business sacrifices to produce one product unit. What is “accounting”?Accounting is the art and science of recording, classifying, summarizing, and analyzing inputs to make sense of the information related to financials, management, or cost. If you are new to accounting, you can learn basic accountingAccounting is the formal process through which a company attempts to present its financial information in a way that is both auditable and usable by the general public. read more here. What is “cost accounting”?Cost accounting is the art and science of recording, classifying, summarizing, and analyzing costs to help management make prudent business decisions. If you want to learn Cost Accounting professionally, you may want to look at 14+ hours of Cost Accounting Course Functions of Cost AccountingThere are three functions of cost accounting –
Direct costs & indirect costsDirect costsDirect cost refers to the cost of operating core business activity—production costs, raw material cost, and wages paid to factory staff. Such costs can be determined by identifying the expenditure on cost objects.read more are directly involved in producing goods. That means direct costs can be directly identified as being used in producing goods. For example, we can talk about direct materialDirect materials are raw materials that are directly used in the manufacturing process of a company's goods and/or services and are an essential component of the finished goods manufactured.read more and direct labor used to produce goods. These costs we can identify as direct costs. On the other hand, indirect costs are costs that can’t be identified easily. These costs can’t be identified separately because these costs assist in functioning multiple activities. For example, the rent business pays for running a production operation would be called indirect costsIndirect cost is the cost that cannot be directly attributed to the production. These are the necessary expenditures and can be fixed or variable in nature like the office expenses, administration, sales promotion expense, etc.read more since we can’t identify how much portion of the rent is used for the production of goods, how much is used for preparing the raw material, how much is used to install the simulation systems that can train the workers. Understanding these two types of costs is important since we would be using these costs to compute the cost of sales per unit for a particular product. Fixed Costs, Variable Costs, & Semi-variable CostsFixed costsFixed Cost refers to the cost or expense that is not affected by any decrease or increase in the number of units produced or sold over a short-term horizon. It is the type of cost which is not dependent on the business activity.read more don’t change with the increase or decrease of production units. That means these costs remain similar within a broad range of the spectrum. Plus, the per-unit fixed cost changes as the production increases or decreases. For example, rent is a fixed cost. Even if the production increases or decreases, the business needs to pay the same rent month in and month out. Variable cost is the exact opposite of fixed cost. Variable cost changes as per the increase or decrease of production units. But even if the total variable costTotal variable cost is the total of all variable costs that would change in proportion to the output or the production of units and helps analyze the company's overall costing and profitability. Total variable cost formula = number of units produced x variable cost per unit.read more changes, per unit cost per unit, remain the same irrespective of changes in production units. For example, the cost of raw materials is variable. The total cost of raw materials changes if the production increases or decreases. But the per-unit cost of raw materials remains the same even if the production increases or decreases. In semi-variable costs, both components are present. Semi-variable costs are a combination of fixed costs and variable costs. For example, you pay $1000 per month as a fixed salary to all your workers, and the workers who produce more than 50 units of toys every month get an additional $5 for every additional unit produced. These sorts of wages will be called semi-variable wages. Cost Accounting Statement – Example and FormatCost accounting is much more than a cost statement. But still, the cost statement will give us an idea about how to calculate the cost of sales per unit for a particular product – MNC Factory has the following information, and from the below-furnished information, you need to calculate the per-unit cost of sales.
Find out the cost of sales per unit. In this example, every input is given. We need to put the figures in the right place. Statement of Cost of ABC Factory
What is Management Accounting?Management accounting collects, analyzes, and understands the financial statements and statistical and qualitative information to make sense of how the business is going and what to do shortly. Management accounting helps to make short-term decisions and also helps strategize for future big events. The idea behind management accounting is to prepare periodical reports that can educate and inform the company’s managers to make effective decisions. Even if management accounting is much different than financial accounting and cost accounting (cost accounting is one of the subsets of management accounting), it gathers information from both of this accounting in producing periodical reports for management. What can we expect to find in those periodical reports?The exact motto of these reports is to help management get all the information at their fingertips and use the information to make effective decisions for the business. Since there is no statutory requirement, these reports are articulated as per the need of the management. Here are the characteristics of these reports –
Importance of management accounting in businessSince we know that management accounting periodical reports serve a great purpose in making effective decisions for management, we need to know the importance of management accounting in business. Here are the top-most factors –
Tools used in management accountingThere are many tools used in management accounting. Following are top-most which are frequently used –
Cost Accounting vs Management Accounting – Key differencesThere are many differences between cost accounting vs. management accounting. Let’s have a look –
Cost Accounting vs Management Accounting (Comparison Table)The below table summarizes the key differences between cost accounting vs. management accounting.
Conclusion – Cost Accounting vs Management AccountingBoth cost accounting vs. management accounting help management make effective decisions. But their scope and tools are completely different. As management accounting depends a lot on cost accounting to prepare reports, cost accounting happens to be a subset of management accounting. But if we look at the usage, estimation process, data points used, and utility, cost accounting has a much narrower scope than management accounting. At the same time, you must understand cost accounting well to understand management accounting. Therefore, it is important to understand the contrast between cost accounting and management accounting. Recommended ArticlesThis has been a guide to Cost Accounting vs. Management Accounting. Here we discuss the top difference between cost accounting and management accounting and infographics and a comparison table. You may also have a look at the following articles –
What is the relationship of cost accounting to financial accounting and management accounting?Cost accounting helps lower costs prevent businesses from exceeding the budget, and helps increase efficiency. Management accounting provides a bigger financial picture, historical data, and future financial projects that inform decision-making and strengthen business strategy.
What is the difference between cost accounting and management accounting and financial accounting?Cost accounting is based on data derived from financial accountants. Management accounting is based on data derived from financial accounting, cost accounting and other sources. 05. It can be installed without management accounting.
What is the relationship between costing and cost accounting?Costing refers to the practice of identifying costs of any product, service or activity, at various times and stages of production. Cost Accounting is a method of accounting that records, classifies, allocate, summarize, analyse, interpret and controls the cost incurred on any product, process, service or activity.
What is the relationship between management and accounting?Accounting and Management are very closely related. Because management depends entirely on accounting for information in financial affairs to make decisions. Accounting provides all kinds of financial information in project planning and implementation of a business concern.
|