Cost and

Management
Accounting
Cost Concepts
and
Classifications
 Cost
• Cost :- Cost can be defined as the expenditure
(actual or notional) incurred on or attributable to
a given thing.
• It can also be described as the resources that have
been sacrificed or must be sacrificed to attain a
particular objective.
• In other words, cost is the amount of resources used
for something which must be measured in terms of
money.
 Cost: Expense, Loss and
Asset
 The term COST is not the same thing as
Expense, Loss and Asset. The three terms have
different meanings and can be said to be the
subsets of Cost
 Expense
 Expense: Financial Accounting Concept
 Expense is that portion of the cost which has been
consumed during the current accounting period and
which has contributed to the revenue generation
 In other words, when the economic benefit of an
outflow of resources is received and matched
against a revenue, it becomes an expense of that
year
 Also called as EXPIRED COST
 Example: depreciation on machine
 Loss
 Loss is that portion of the cost which has been
incurred but which did not contribute to the revenue
generation
 In other words, loss is incurred when the resources
have been foregone but the economic benefit
of the outflow of resources has neither been
received nor will it be received in future
 Example: loss of an uninsured asset like stock of
material or a machinery due to fire
 Asset
 It is that portion of the cost which has not been
consumed during the current accounting period and
is expected to generate benefit in the future period
 In other words, when the economic benefit of an
outflow of resources is expected to be received in a
future period, it is termed as an asset
 Also called as UNEXPIRED COST
 Shown on the asset side of Balance Sheet
 Example: closing stock of material, work‐in‐progress
and finished stock, depreciated value of a machine
etc.
 Classification of Cost
 Grouping of Costs according to their common
characteristics

Cost Classification
Elements Functions Traceability Variability/ Controllability Normality Decision
to Cost Behaviour Making
Costs
Material Manufacturing Object Controllable Normal
Labour Fixed Uncontrollable Abnormal
Expense Administrative Variable
Direct Semi‐
Selling
Indirect Variable
Distribution
Cost Classification: By Elements of Cost
• Every cost is made up of three elements: Material, Labour and
Expense

Material Cost Labour Cost Expense*

• Refers to cost incurred on the • Refers to cost of human effort • Refers to every such cost which
commodities/ substance, which involved in the process of is neither material cost nor
may become or may not become production, administration and labour cost
the integral part of the product sales • Examples:
• Examples: • Examples: • Royalty payable
• Timber for furniture • Wages of Carpenter • Hiring charges on equipment
• Paper in books
• Supervisor salaries • Rent , rates and taxes
• • CoNnsumable stores
• Manager’s Remuneration • Depreciation on equipment
• Stationary used in accounts • Salesman Commission etc. • Cost of power and electricity
office or sales department etc.
etc.

• *Note: it refers to expense as a component of total cost and not the expense as a financial accounting concept
discussed earlier
 Cost Classification: By Functions
 Cost can also be classified by the function it relates to as:
 Manufacturing Cost
 It is the cost of sequence of operations which begins with
supplying materials, labour and services and ends with the
primary packing of the product
 Taking an example of a furniture manufacturer, manufacturing cost will
include cost of wood, wages of carpenter, cost of consumable stores,
printing, postage and stationery used in the workshop (production
department), salaries of supervisor and foreman, repairs, insurance and
depreciation of assets used in production department, excise duty on
production etc.
 Administrative Cost
 It represents the cost of formulating the policy, directing the
organisation and controlling the operations of the undertaking, not
related to production, sales and research & development.
 Cost Classification: By Functions
Selling Cost
(contd..)
 It is the cost incurred for the purpose of promoting sales
(stimulating the demand) and retaining customers
 It includes cost incurred on advertisements, cost of free
samples distributed, exhibitions conducted, printing of sales
catalogues, after sale services etc.

Distribution Cost
 It represents the cost incurred on making the packed product
available to the customer. It consists of the packing cost
(meant for facilitating storage and transportation of
product), carriage outward, warehousing costs, showroom
rent etc.
Cost Classification: By Functions (contd..)
 Research Cost
 It consists of the cost of searching for new or improved products,
new application of materials, or new or improved methods of
production etc.
 Development Cost
 It refers to the cost of process which begins with the
implementation of the decision to produce a new or improved
product or to employ a new or improved methods of production
and ends with commencement of formal production of that
product or by the method.
 Cost Classification: By Traceability to Cost
Object
 Costs may be categorised as Direct Cost or Indirect Cost with
respect to its traceability to the cost object (a unit, a machine or a
department, or anything for which a separate measurement of cost
is desired.

Direct Cost Indirect Cost

Cost which cab be traced Cost which are common to

conveniently and multiple cost objects and cannot
logically to a cost object be traced to a single cost object

Example – cloth used in a Example – Salary of a supervisor

garment, wood in looking after 3 machines, Factory
furniture, flour used in a rent having multiple production
cake etc. departments etc.
 Cost Classification: By
Variability/Behaviour
 Costs are also classified as:
 Fixed Costs
 Variable costs
 Semi‐Variable/Semi‐fixed costs
on the basis of their variability, i.e. behaviour with the
change in the level of activity (like change in the volume of
production)
Fixed Costs (cost classification by variability)
 These are the costs which do not vary with the change in the level of
activity, i.e. they remain constant at different levels of activity but upto a
given range of output
 If the range of output is crossed, these costs jump up to a new level and
remains constant at that level for next range of output
 Example: rent of a building, insurance premium on plant and machinery,
manager’s salary etc.
• Fixed costs can also be of two types:
 Committed fixed costs
 Costs like rent of a building, insurance premium on plant and machinery,
manager’s salary etc. which cannot be avoided and affected in short run if an
organisation has to function.
 Discretionary Fixed Costs
 Costs such as Research and development expenditure, advertising budget, training
budget etc., which are set at a fixed amount and periodically revised by the
management in the budgeting process. These are the costs resulting from
management discretion and policy
 Variable Costs (cost classification by
variability)
 These are the costs which changes proportionally with the
change in the volume of output.
 Example: cost of raw material used for product, wages of
labour converting material into product etc.
 It is the total variable cost which changes with the change
in level of output, but the variable cost per unit remains
constant
 Semi‐Variable Costs/ Semi‐Fixed Costs
(cost classification by variability)

 Certain costs are mixed in nature, i.e. they neither remain constant
nor changes proportionally with the change in level of output
 Such costs comprises one component as fixed and another variable.
 For example, if the telephone rental is paid as Rs. 200 fixed monthly
and 30 paise per minute of call, then Rs. 200 is a minimum
unavoidable fixed amount which is payable irrespective of the
usage and 30 p per minute is the variable amount which will
change proportionally with usage
 Other examples of semi‐variable or semi‐fixed costs could be
Depreciation (loss of value due to lapse of time is bound to take
place irrespective of use of asset and level of usage will also affect
loss of value), repairs and maintenance , electricity bill etc.
 Cost Classification: By Controllability

 Costs can also be categorised as controllable costs or

uncontrollable costs with reference to a specified level of
authority.
 If a cost can be significantly influenced by the action of a member of
a specified level of authority, it is said to be a controllable cost at
that level, while if a cost cannot be influenced by the action at that
level of authority, it is said to be uncontrollable cost
 For example, cost due to efficiency in the usage of material, labour
etc. are controllable by a factory supervisor (shop level
management) while factory rent or managerial salaries are not
controllable at his level.
 Cost Classification: By Normality
 On the basis of Normality, cost can be classified as:
 Normal Cost
 It is the cost which is normally incurred at a given level of output
in the conditions in which that level of output is normally
attained
 It is treated as part of cost of production
 Example: cost of material and labour required as per standard
 Abnormal Cost
 It is the cost which is not normally incurred at a given level of
output in the conditions in which that level of output is normally
attained
 It is not treated as part of cost of production
 It is charged to Costing P&L account
 Example: wages paid for strike period, cost of material destroyed
due to fire etc.
 Decision‐Making Costs
• There are certain special costs used for Managerial Decision‐
Making
• These are the Special Purpose costs which are ascertained to
suit specific decision and are useful for special purpose only
• They may not conform to established accounting practices
• They are futuristic in character
• Different decision making costs are calculated to suit different
decision areas
• Example: Shut down costs, Sunk costs, Opportunity costs,
Imputed costs, Relevant and Irrelevant costs, Out‐of‐
pocket cost, Differential cost etc.
 Relevant And Irrelevant Cost :
(Decision Making Cost)
 Relevant Costs
 All those costs which influence a choice of alternatives in a particular
situation (decision to be taken) and are also affected by that decision
are said to be relevant costs of that decision
 Irrelevant Costs
 All those costs which remain the same and are not affected by the
decision whatever alternative is chosen are said to be irrelevant
costs for that decision
Example of Relevant and Irrelevant Cost
• An organisation has to take a decision regarding production of a new product, to be produced in same
factory premises where production is already taking place and there is sufficient capacity (space) for
additional production. Company is paying annual rent of Rs. 1,00,000 for the factory. For this decision,
raw material cost of new product is a relevant cost as it will be incurred if decision to produce will be
taken and will not be incurred if product is not produced. However the rent paid for the factory is an
irrelevant cost of this decision as rent will be paid irrespective of production or non production of new
product.

Note: any cost is relevant or irrelevant in context of decision in hand. One item of cost relevant in one
situation may be irrelevant for decision making in another situation
 Other Decision‐making Costs
Sunk Costs
 Sunk costs are the historical costs that arise due to decisions made in the
past and cannot be changed by any decision made in future
 Example: investments in Plant & Machinery is a prime example of sunk cost;
in decisions relating to replacement of old machine, the written down value
of old machine adjusted for its recoverable value is a sunk cost as it has
been incurred in past and cannot be changed by future decision
 Since sunk costs cannot be altered in future, they are always irrelevant costs
in future decision making
Shut‐down Costs
 These are the unavoidable fixed costs which continue to be incurred even
when a plant is temporarily shut down
 Example: rent, insurance and depreciation of building, salaries of
permanent staff etc.
 Managers must take into account shut‐down costs while considering shut‐
down or continue decisions
Other Decision‐making Costs (contd…)
 Imputed/Hypothetical/Notional Costs
 These are the costs for which neither any transaction has taken
place nor any cash outlay is there but it represents a sacrifice or
resource use capable of being measured in monetary terms
 Example: a producer is doing production in his own premises for
which no rent is paid but which has a market value of Rs. 15,000
per month, he can record Rs. 15,000 per month as notional factory
rent while determining the cost of production of output
 Similarly, interest which one would have earned on his capital, if it
was invested outside is a notional or imputed rent cost
 Notional costs do not appear in Financial accounts
 It is same as concept of opportunity cost in Economics
 Other Decision‐making Costs (contd…)
 Differential Costs
 The difference in total cost resulting from a proposed change (like change in
activity level, technology, process or method of production etc.) is called
Differential costs
 It is the increase or decrease in total cost due to an alternative course of
action
 If choice of alternative results in increased cost, such increased costs are termed as
Incremental Cost. While assessing the profitability of a proposed change, the
incremental costs are matched with incremental revenues.
 Choice of alternative resulting in decreased cost, such decrease in cost is called
as Decremental Cost
 Out of Pocket Cost / Explicit Costs
 These are those costs that require cash outlay due to a particular managerial
decision
 It represents both present and future outflow of cash due to a decision
 Example: In decision regarding replacement of own truck by a private career, present
expenditure on fuel, salary to drivers, road tax etc. will be considered as out‐of‐
pocket costs, while depreciation does not require any cash outlay and thus not
 Cost Accounting

• Cost Accounting is a branch of accounting and has been

developed due to limitations of financial accounting.
• Limitations of Financial Accounting :
– ?????
Basic Concepts of
Cost Accounting

• Cost
• Costing
• Cost Accounting
• Cost Accountancy
 Cost
• Cost :- Cost can be defined as the expenditure
(actual or notional) incurred on or attributable to
a given thing.
• It can also be described as the resources that have
been sacrificed or must be sacrificed to attain a
particular objective.
• In other words, cost is the amount of resources used
for something which must be measured in terms of
money.
 Costing
• Costing may be defined as ‘the technique and process of
ascertaining costs’.
• According to Wheldon, ‘Costing is classifying, recording,
allocation and appropriation of expenses for the
determination of cost of products or services and for the
presentation of suitably arranged data for the purpose of
control and guidance of management.
• It includes the ascertainment of every order, job, contract,
process, service units as may be appropriate. It deals with the
cost of production, selling and distribution.
• ‘Costing’ is precisely the procedure which helps them to find
out the costs of products or services.
 Cost Ascertainment & Cost Estimation
• Cost estimation is the process of pre-determining the cost of a certain product job
or order. Such pre-determination may be required for several purposes. Some of the
purposes are as follows:
· Budgeting
· Measurement of performance efficiency
· Preparation of financial statements (valuation of stocks etc.)
· Make or buy decisions
· Fixation of the sale prices of products
• Cost ascertainment is the process of determining costs on the basis of actual data.
• Hence, the computation of historical cost is cost ascertainment while the computation
of future costs is cost estimation.
• Both cost estimation and cost ascertainment are interrelated and are of immense use to
the management.
• In case a concern has a sound costing system, the ascertained costs will greatly help the
management in the process of estimation of rational accurate costs.
• Moreover, the ascertained cost may be compared with the pre-determined costs on a
continuing basis so that proper and timely steps can be taken for controlling costs and
maximizing profits.
 Cost Accounting
• Cost Accounting primarily deals with collection,
analysis of relevant cost data for interpretation and
presentation for various problems of management.
• Cost accounting accounts for the cost of products,
service or an operation.

• It is defined as, ‘the establishment of budgets,

standard costs and actual costs of operations,
processes, activities or products and the analysis
of variances, profitability or the social use of
funds’.
 COST ACCOUNTING - MEANING

Cost accounting is concerned with recording,

classifying and summarizing costs for
determination of costs of products or services,
planning, controlling and reducing such costs
and furnishing of information to management
for decision making
 Cost Accountancy
• Cost Accountancy is a broader term and is
defined as, ‘the application of costing and
cost accounting principles, methods and
techniques to the science and art and
practice of cost control and the
ascertainment of profitability as well as
presentation of information for the purpose
of managerial decision making.’
 Essentials of a good Costing system
• Costing system adopted in any organization should be suitable to
its nature and size of the business and its information needs.
• A costing system should be such that it is economical and the
benefits derived from the same should be more than the cost of
operating of the same.
• Costing system should be simple to operate and understand.
Unnecessary complications should be avoided.
• Costing system should ensure proper system of accounting for
material, labor and overheads and there should be proper
classification made at the time of recording of the transaction
itself.
• Before designing a costing system, need and objectives of the
system should be identified.
• The costing system should ensure that the final aim of ascertaining
of cost as accurately possible should be achieved.
 Scope of Cost Accounting
• Cost Analysis: Cost accounting determines the deviation of the
actual cost as compared to the planned expense, along with the
reason for such variation.
• Cost Audit: To verify the cost sheets and ensure the efficient
application of cost accounting principles in the industries, cost
audits are done.
• Cost Report: Cost reports are prepared from the data acquired
through cost accounting to be analysed by the management for
strategic decision making.
• Cost Ascertainment: To determine the price of a product or
service, it is essential to know the total cost involved in
generating that product or service.
 Scope of Cost Accounting

• Cost Book Keeping: Similar to financial accounting; journal

entries, ledger, balance sheet and profit and loss account is
prepared in cost accounting too. Here, the different cost
incurred is debited, and income from the product or service
is credited.
• Cost System: It provides for time to time monitoring and
evaluation of the cost incurred in the production of goods
and services to generate cost reports for the management.
• Cost Comparison: It examines the other alternative product
line or activities and the cost involved in it, to seek a better
opportunity for generating high revenue.
 Scope of Cost Accounting

• Cost Control: Sometimes, the actual cost of a product or

service becomes higher than its standard cost. To eliminate
the difference and control the actual cost, cost accounting is
required.
• Cost Computation: When the company is engaged in the
production of bulk units of a particular product or
commodity, the actual per-unit cost is derived through cost
accounting.
• Cost Reduction: It acts as a tool in the hands of management
to find out if there is any scope of reducing the standard cost
involved in the production of goods and services. Its purpose
is to obtain additional gain.
 OBJECTIVES OF COST
ACCOUNTING
• Control and Reduce Cost: Cost accounting continuously focuses on
managing the cost of production per unit to improve profitability
without compromising with the quality of the product.
• Determine Selling Price: It provides the total cost incurred in the
product or service, which is the base for fixing an appropriate selling
price.
• Assist Management in Decision Making: The reports and cost
sheets generated based on cost accounting back the managerial
decisions of the organization.
• Ascertain Closing Inventory: It determines the closing inventory
value at the end of the financial year.
• Ensure Profit from Each Activity: Cost accounting reviews the cost
and takes corrective actions at each level to ensure profitability from
all business activities.
 OBJECTIVES OF COST
ACCOUNTING
• Budgeting: It generates the estimated cost of products or
services to assist in budget planning, implementation and
control.
• Setting Performance Standards: It provides a standard cost
of goods or services to sets a level for the future course of
action.
• Business Expansion: It estimates the cost of production at
different stages, based on this analysis, the management can
plan for expansion of the business.
• Minimizing Wastage: Cost control and reduction so attained
helps in reducing the wastage during the manufacturing
process.
• Improves Efficiency: Cost accounting assures cost
 Importance of Cost Accounting
• To ascertain the cost of production on per unit basis, for example,
cost per kg, cost per meter, cost per liter, cost per ton etc.
• Cost accounting helps in the determination of selling price.
• Cost accounting helps in cost control and cost reduction.
• Ascertainment of division wise, activity wise and unit wise
profitability becomes possible through cost accounting.
• Cost accounting also helps in locating wastages, inefficiencies and
other loopholes in the production processes/services offered.
• Cost accounting helps in presentation of relevant data in a
systematic manner to the management which helps in decision
making.
• Cost accounting also helps in estimation of costs for the future.
 Important Terms
Cost Center :- ‘A production or service, function, activity or item of
equipment whose costs may be attributed to cost units.’
 A cost center is nothing but a location, person or item of equipment for
which cost may be ascertained and used for the purpose of cost control.
For example,
– A production department, stores department, sales department can be cost
centers.
– Similarly, an item of equipment like a lathe, fork-lift, truck or delivery vehicle can
be cost center,
– A person like sales manager can be a cost center.
 The main object of identifying a cost center is to facilitate collection of costs.
 A cost center can be either personal or impersonal, similarly it can be a
production cost center or service cost center.
 A cost center in which a specific process or a continuous sequence of
operations is carried out is known as Process Cost Center.
 Important Terms
Profit Center:- is defined as, ‘a segment of the business entity by which
both revenues are received and expenses are incurred or controlled ’.
(CEMA) A profit center is any sub unit of an organization to which both revenues
and costs are assigned.

 As explained above, cost center is an activity to which only costs are assigned
but a profit center is one where costs and revenues are assigned
so that profit can be ascertained.
 Such revenues and expenditure are being used to evaluate segmental
performance as well as managerial performance.
 A division of an organization may be called as profit center.
 The performance of profit center is evaluated in terms of the fact whether the
center has achieved its budgeted profits.
 Thus the profit center concept is used for evaluation of performance.
 Important Terms
Cost Units: Defined by CIMA as a “Unit of product or services
in relation to which cost is ascertained.”
Examples:
In a sugar mill, the cost per tonne of sugar may be ascertained.
In a textile mill, the cost per metre of cloth may be ascertained

In other words, Cost Unit is unit of measurement of

cost.

Cost unit of Production :e.g. a ream of paper, a tonne of steel, a

metre of cable, etc.
Cost unit of service: e.g., per patient per day, cinema seats, per
passenger per km etc.
Examples Cost Unit
 Important Terms
Cost Object: It is any item for which costs are being separately
measured. It may be a particular product, service, activity or
process etc.
Types of Cost Object:
• Output. The most common cost objects are a company's products and
services, since it wants to know the cost of its output for profitability
analysis and price setting.
• Operational. A cost object can be within a company, such as a department,
machining operation, production line, or process. For example, you could
track the cost of designing a new product, or a customer service call, or of
reworking a returned product.
• Business relationship. A cost object can be outside of a company - there
may be a need to accumulate costs for a supplier or a customer, to
determine the cost of dealing with that entity. Another variation on the
concept is the cost of renewing a license with a government agency.
 Important Terms
Cost Driver: Definition: A cost driver triggers a change in the cost
of an activity. The concept is most commonly used to assign overhead
costs to the number of produced units.
• It can also be used in activity based costing analysis to determine
the causes of overhead, which can be used to minimize overhead
costs.
Examples of cost drivers are as follows:
• Direct labor hours worked
• Number of customer contacts
• Number of engineering change orders issued
• Number of machine hours used
• Number of product returns from customers
 Cost Allocation and Cost Apportionment
• Cost allocation and cost apportionment are the two procedures which
describe the identification and allotment of costs to cost centers or cost
units.
• Cost allocation refers to the allotment of all the items of cost to cost
centers or cost units whereas cost apportionment refers to the
allotment of proportions of items of cost to cost centers or cost units .
• Thus, the former involves the process of charging direct expenditure to
cost centers or cost units whereas the latter involves the process of
charging indirect expenditure to cost centers or cost units.
• For example, the cost of labor engaged in a service department can be
charged wholly and directly but the canteen expenses of the factory
cannot be charged directly and wholly. Its proportionate share will have
to be found out. Charging of costs in the former case will be termed as
“allocation of costs” whereas in the latter, it will be termed as
“apportionment of costs.”
Cost - Resources that have been sacrificed or must be
sacrificed to attain a particular objective.
Costing - Technique and Process of ascertaining costs.
Cost Accounting - Collection, analysis of relevant of
cost data for interpretation and presentation for
various problems of management.
Cost Accountancy - Application of costing and cost
accounting principles, methods and techniques to the
science and art and practice of cost control and the
ascertainment of profitability as well as presentation
of information for the purpose of managerial
decision making.
 Difference b/w
Financial Accounting & Cost Accounting
Point of
Financial Accounting Cost Accounting
Differences
Recoding of transactions is part of
Cost accounting is used to calculate cost of
financial accounting. We make financial
the product and also helpful in controlling
statements through these transactions.
Meaning cost. In cost accounting, we study about
With the help of financial statements, we
variable costs, fixed costs, semi-fixed costs,
analyze the profitability and financial
overheads and capital cost.
position of a company.

Purpose of the financial statement is to To calculate cost of each unit of product on

Purpose show correct financial position of the the basis of which we can take accurate
organization. decisions.

In cost accounting, we book actual

Estimation in recording of financial transactions and compare it with the
Recording transactions is not used. It is based on estimation. Hence costing is based on the
actual transactions only. estimation of cost as well as on the
recording of actual transactions.

Cost accounting done with the purpose of

Correctness of transaction is important control over cost with the help of costing
Controlling
without taking care of cost control. tools like standard costing and budgetary
control.
 Difference b/w
Financial Accounting & Cost Accounting
Point of
Financial Accounting Cost Accounting
Differences
Reporting under cost accounting is done as
Period of reporting of financial
Period per the requirement of management or as-
accounting is at the end of financial year.
and-when-required basis.

In financial accounting, costs are In cost accounting, minute reporting of cost

Reporting
recorded broadly. is done per-unit wise.

Cost accounting provides sufficient

Fixation of Selling Fixation of selling price is not an
information, which is helpful in determining
Price objective of financial accounting.
selling price.
Relative efficiency of workers, plant, and
Valuable information about efficiency is
Relative Efficiency machinery cannot be determined under
provided by cost accountant.
it.

Valuation of Valuation basis is ‘cost or market price Cost accounting always considers the cost
Inventory whichever is less’ price of inventories.

Cost of sale of product(s), addition of margin

Journal entries, ledger accounts, trial
Process and determination of selling price of the
balance, and financial statements
product.
 Difference b/w
Cost Accounting & Management Accounting
S.No. Cost Accounting Management Accounting
The primary objective of management accounting is
The main objective of cost accounting is to to provide necessary information to the
1 assist the management in cost control and management in the process of its planning,
decision-making. controlling, and performance evaluation, and
decision-making.

Cost accounting system uses quantitative Management accounting uses both quantitative and
2 cost data that can be measured in monitory qualitative data. It also uses those data that cannot
terms. be measured in terms of money.

Determination of cost and cost control are Efficient and effective performance of a concern is
3
the primary roles of cost accounting. the primary role of management accounting.

Success of management accounting depends on

Success of cost accounting does not depend
4 sound financial accounting system and cost
upon management accounting system.
accounting systems of a concern.
Management accounting is based on the data as
Cost-related data as obtained from financial
5 received from financial accounting and cost
accounting is the base of cost accounting.
accounting.
 Difference b/w
Cost Accounting & Management Accounting
S.No. Cost Accounting Management Accounting
Provides future cost-related decisions based Provides historical and predictive information
6
on the historical cost information. for future decision-making.

Cost accounting reports are useful to the

Management accounting prepares reports
7 management as well as the shareholders and
exclusively meant for the management.
creditors of a concern.
Principals of cost accounting and financial
8 Only cost accounting principles are used in it. accounting are used in management
accounting.
Statutory audit of cost accounting reports are
9 necessary in some cases, especially big No statutory requirement of audit for reports.
business houses.
Management accounting uses financial
Cost accounting is restricted to cost-related
10 accounting data as well as cost accounting
data.
data.
 Costing Methods and Techniques
It is necessary to understand the difference between the
costing methods and techniques.
• Costing methods are those which help a firm to
compute the cost of production or services offered by it.

• Costing techniques are those which help a firm to

present the data in a particular manner so as to
facilitate the decision making as well as cost control
and cost reduction.
Methods of Costing Techniques of Costing

• Job Costing
• Batch Costing • Marginal Costing
• Process Costing • Standard Costing
• Operating Costing • Budgets &
• Contract Costing Budgetary Control
• Single, Output or
Unit Costing
• Multiple or
Composite Costing
 Methods of Costing
There are two principle methods of costing:
1. Job Costing
2. Process Costing

Other methods of costing are the variations of these two

principle methods:
I] Job Costing: Batch Costing, Contract Costing, Multiple
Costing.
II] Process Costing: Unit or Single Output Costing, Operating
Costing, Operation Costing