Understanding the Difference Between Cost Accounting and Management Accounting

 

Introduction to Cost Accounting and Management Accounting

Let’s understand cost accounting and management accounting in detail:-

What is Cost Accounting?

Cost accounting is the systematic recording, analysis, and reporting of expenses for the production of goods and services. Thus, it aims at providing the cost manager with a precise understanding of cost behavior so that the provider of the resources might be identified and where such inefficiencies exist. 

What is Management Accounting?

Management accounting covers a much larger domain than cost accounting. It combines both financial and operational data for strategic decisions. It provides managers with information, on time and relevant, to help planners to direct and control the activities of organizations. 

Functions of Cost Accounting

Some of the functions of cost accounting are-

• Cost Control Cost accounting allows organizations to track actual costs against budgeted costs. It enables managers to identify variance and take corrective action for waste minimization and optimum resource utilization. This process includes checking expenditures at regular intervals it thus improves efficiency and enhances profitability.

• Cost Allocation: The right cost allocation is fundamental for profitability measurement through the assignment of costs to certain departments, products, or services. There are different methodologies of cost accounting that ensure that the direct costs, such as raw materials, and indirect costs, such as overhead, are correctly allocated so each segment may know its financial health.
• Pricing Decisions: There is a good understanding of the cost structures that dictate whether prices are competitive. The data arising from cost accounting makes it possible to decide what the best price for the products would be so that there is an opportunity for their sale. The optimal pricing decisions will ensure that products’ prices are sufficient enough to compensate for costs while at the same time remaining attractive to the customer. Hence, this analysis gives support to discount, markup, and promotional pricing decisions.
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