Difference between Cost Accounting and Management Accounting?

What is Cost Accounting?

In Cost Accounting we calculate the cost of creating goods or services. Cost accountants keep track of all costs involved in the production process, including those for labour, raw materials, and overhead. The price of goods and services as well as the effectiveness of the production processes are determined by accountants using this data. Cost accounting is a crucial tool for companies aiming to optimise their operations since it necessitates a thorough understanding of production costs.

5 Different Types of Cost Accounting:

1. Standard Cost Accounting: Standard Costing is a process and technique of accounting in which actual costs incurred are compared with pre-determines costs. 

When labour, time, and anticipated material expenses are used efficiently, the normal operating costs—also known as efficient costs—apply. Therefore, you can think of standard expenses as a budget that you can use to show your expected COGS.

When the standard costs and actual costs are contrasted with one another, you'll see a difference. In the event that actual costs exceed standard costs, you get a negative variance. The variance is advantageous if they're lower. Variance analysis can be used to increase budgeting, earnings, and operational efficiency.

2. Activity-Based Cost Accounting: Activity-based cost (ABC) accounting, also known as job costing, is used to determine costs at the unit level.

In activity-based costing, all expenses (direct, indirect, variable, fixed, materials, labour) are attributed to specific "activities" or jobs. These activities can include a variety of services and tasks as well as other aspects of your company, such as clients, departments, employees, or products.

Activity-based costing is highly useful since it allows for the extraction of profit and loss statements at the management accounting level by unit. This gives you the ability to compare your actual costs, revenues, and profit margins with nearly any other aspect of your business.

You may determine which customers, service kinds, positions, tasks, employees, or departments are the real profit generators in your organisation and which ones might be costing you more than you think with the help of ABC accounting.

 3. Lean Accounting: To enable the Optimal corporate operation, lean accounting examines costs with the aim of reducing waste and maximising efficiency.

To maximise return on investment and profit margins, lean accounting attempts to enhance overall financial management.

4. Marginal Cost Accounting:  The amount a particular service or product contributes to the overall profitability of your business is calculated using marginal cost accounting, often known as cost-volume-profit analysis.

In addition to assisting in price optimization, campaign evaluation, and even the practicality of launching new services or products, this form of costing may be used to analyse the influence that volume and fluctuating expenses have on your earnings.

5. Environmental Cost Accounting: This kind of cost accounting keeps track of costs associated with the environmental cost of rendering a service or manufacturing a good. Environmental impact costing is not something that every sort of organisation should consider, but it can be quite helpful in some fields where these costs might be very substantial, like construction.

Waste management, managing contaminated job sites, avoiding and reducing pollution, deploying pollution prevention technology, and cleanup expenses are only a few examples of the environmental expenditures related to operation.

According to environmental costing, these costs are taken into account in relation to the total cost of production and their impact on a company's profit margins.

What is Management Accounting?

The process of creating reports on financial and non-financial transactions using the information that is now accessible is known as management accounting. These reports are created by gathering, evaluating, and interpreting quantitative, qualitative, and statistical data. They also largely rely on the company's financial accounts.

Typically, a company uses some of these technologies to engage in efficient Management Accounting-

·         Accounting ratios

·         Key performance metrics

·         Key outcome areas

·         Financial simulation

The data gathered through this technique is thought to be very helpful for developing short-term business policies and strategies. Notably, the management of the company has access to and uses the reports created with the aid of managerial accounting. 

Conclusion:

The primary difference between cost accounting and management accounting is that the cost accounting focuses on comprehending historical expenses while the management accounting concentrates on forecasting future costs and improving company decisions. Both are crucial for businesses to operate profitably and efficiently. With the help of this article, we hope you acquired more knowledge about these two sorts of accounting.

Thank you!!