TheTaxHeaven Dictionary - Know the meaning of tax

Cost Accounting

Cost accounting is a method used in managerial accounting to identify and track a business' total expenses. It monitors expenditures at each production stage and calculates the overall production cost. This technique was developed during the industrial revolution and is especially useful in managing manufacturing costs. 

Early on, industries like steel and rail utilized cost accounting to manage expenses and improve competitiveness. By the early 20th century, it was a common topic in corporate management literature. 

Cost accounting is used internally to identify and monitor both variable and fixed manufacturing expenses. It compares input costs with output outcomes to evaluate financial performance and inform business decisions. 

The types of costs tracked in cost accounting include: 

  • Fixed costs

  • Operating costs

  • Direct costs

  • Variable costs

  • Indirect costs

Cost Accounting vs Financial Accounting

While financial accounting is used by outside parties to understand a company's financial situation, cost accounting is primarily used internally. The main difference is that cost accounting classifies costs based on internal needs, while financial accounting organizes costs based on the type of transaction. 

Cost Accounting Types

  • Standard Costing

  • Activity-Based Costing

  • Lean Accounting

  • Marginal Costing