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Friday, March 4, 2011

What Is Cost And Cost Accounting

Cost Accounting: Management accounting is often called cost
accounting and you will find the terms used interchangeably.
Cost accounting is generally considered the major subset of
management accounting. The field of cost accounting has most
of the analytical theories and approaches to cost behavior.
To make a distinction, management accounting looks to the
tasks of decision-making, policy setting, and communicating
information, while cost accounting collects and analyzes costing,
pricing, and performance details for internal management and,
crossing into financial accounting, for external reporting.

Management accounting systems can report information in
any way that is useful to management. The system does not
have to conform to GAAP.Unfortunately, once the
data is in the system, it is often unused or misused.
Managers are usually aware of what is in the externally
reported financials. What happens then is that managers
use only the information in external financial
reports—and so they make poor decisions. Successful managers
need to learn, through study or experience, the tools to
find and analyze the relevant data necessary to make good
business decisions.

Cost accounting varies, depending on whether you manufacture
or retail goods and on whether you provide a product or a
service. In each area, the approach to cost identification varies.
The goal of all approaches is to aid strategic decision-making
and cost management. There are some constants that you need
to understand in order to talk about cost accounting. You will
want to know how much you have to sell to meet expenses. You
will want to know the effect of pricing on sales volume.

In just about all systems, you want to find what it cost to
operate and maintain the business and the amount of profit
made within a specific time period. If you manufacture, you will
want to know the value of the raw materials and the work in
process. How much did you make from finished goods sold and
how many remain to be sold? You take those results and prepare
for the activities of the next time period. You make budgets
and forecasts. You compare with past time periods and look at
any variances that might need corrective action or improvement.
These results help you control, plan, and decide.


  1. Cost Accounting is great help in future production policies..cost accounting helps in unprofitable activities to that the necessary correct action may be taken.
    BAS Agent