Cost v/s Management Accounting

Yarab A |Updated on: July 20, 2022

• Brief on Cost Accounting and Management Accounting
• Objectives and Functions of Cost Accounting
• Objectives and Functions of Management Accounting
• Cost Accounting vs. Management Accounting – A Comparative Study

Brief on Cost and Management Accounting

Cost accounting is the process of accounting cost which commences from the point at which the expenditure is incurred with the motto to establish its ultimate relationship with cost centres and cost units. It includes:

• Collecting, classifying, recording, allocating and analysing costs.
• Preparation of periodical statements and reports for ascertaining and controlling costs.
• Application of cost control methods.
• Ascertainment of profitable planned activities.

On the other hand, Management accounting is an integral part of the management which is concerned with identifying, presenting and interpreting information used for:

• Formulating strategies
• Planning and controlling activities
• Decision making
• Optimizing the use of resources
• Disclosure to shareholders, minority shareholders and outsiders
• Disclosure to employees
• Safeguarding the assets employed and so on.

Objectives and Functions of Cost Accounting

1. Ascertainment of Cost

Cost accounting is all about ascertaining the cost of each unit of production, job, process, department etc.,

2. Cost control and Cost Reduction

The very purpose that cost accounting is prepared is to improve profitability. And this is done by reducing and controlling costs with the help of data that cost accounting provides. To achieve this, various cost accounting techniques like standard costing, budgetary control, inventory control etc., are out to use.

3. Cost accounting a Guide to Business Policy

Data from cost sheets provide guidelines for various managerial decisions like make or buy, whether to sell below the cost, how to use idle plant capacity, how to introduce a new product, what should be it’s pricing and how to be better off the competitors etc.,

4. Working out the selling price -

Cost accounting provides you with the cost data based on which the selling prices of products or services are decided.

Objectives and Functions of Cost Accounting

1. Analysis and interpretation of financial statements such as balance sheet and profit and loss account.
2. Planning and policy making
3. Decision making
4. Controlling, coordinating, and communicating
5. Evaluating the efficiency and effectiveness of policies.
6. Formulating effective tax policies.

Cost Accounting vs. Management Accounting – A Comparative Study

Having a fair idea about cost accounting and management accounting opens a spot for clear sector-wise study to understand the differences between these two for in-depth analysis.

Interested to know more on Cost Accounting? Read our article “What is Cost Accounting? Types, Benefits and How to manage?"

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