Compare costing and cost accounting

Banking & FinanceFinanceFinance Management

Let us learn about costing and cost accounting before understanding the differences between them.

Costing

It is the Process of cost determination and recording. There are various types of cost classifications. Costs are mainly classified into two types namely, function and behaviour.

Function (costs) is sub divided into manufacturing and non manufacturing (selling and administration). Manufacturing costs are again classified as direct costs (material, labour) and indirect costs (overheads).>

Behaviour costs are sub classified into fixed costs, variable costs and semi variable costs

  • Direct costs − Clearly identified (direct material, direct labour, commissions).
  • Indirect costs − Overhead costs (rent, office expenses, accounting expenses).
  • Fixed costs − Costs don’t change with activity (salaries, rent, insurance).
  • Variable costs − Changes with output.
  • Semi variable costs − Fixed cost plus variable element.

Cost accounting

It is the Process of analysing, interpreting and presenting the information to management in decision making. It involves preparing various budgets, determining standard costs, comparing and finding costs with actual costs and quantifying

Objectives

The objectives of cost accounting are as follows−

  • Cost estimation − Based on the present financial year, costs for the upcoming accounting year are estimated by preparing budgets (incremental budgets and zero based budgets). In incremental budgeting, allowances for costs and adds incomes to the coming year. In zero based budgeting, all costs and incomes are justified for the coming year.
  • Analyzing − Standards cost for cost units of productions (material, labour etc) are assigned for per determined time. Difference between standard cost and actual cost is determined at the end and these variances are analyzed and reasons for variance are determined by management
  • Control and reduction − By using variance analysis, unfavourable costs are corrected (reducing in non value activities) by controlling the costs
  • Selling price − Correct selling price is determined based on accurate cost accounting information. In accurate information results setting selling price high/low.

Differences

  • Costing determines costs, while cost accounting analyzes, interpret and presenting cost related information to management and helps in decision making.
  • Costing classifies and records costs based on their effect on business, while cost accounting estimates, accumulates and analyzes costing information.
  • Costing classifies and records cost in a time frame, while costing accounting is used by management in decision making and determining selling price.
raja
Published on 05-Jul-2021 12:21:47
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