Difference Between Cost Accounting and

Management Accounting
Jaya Sharma
Senior Execut ive Cont ent
Updated on Mar 7, 2024 13:43 IST
Through this article, you will learn the difference between cost accounting
and management accounting. We will discuss the different aspects of these
two branches of accounting.

Table of Contents
Cost accounting

Management accounting

Dif f erence between cost accounting and management accounting

All About Cost Accounting

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Cost accounting is a branch of accounting associated with the cost structure
of a company. It is the process of assigning costs to various business operations
and activities of the company. Through this accounting branch, companies can
identify the areas where they are spending more, facing losses and making profits.
The process is meant to improve internal cost controls and in turn, improve
efficiency.

The cost accounting system helps with the following:

Identif ying costs and determining the selling prices

Helping the management with cost controls

Identif ying inef f iciencies and taking measures to control costs

Preparing more data-relevant f inancial statements

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Types of Costs
There are different types of costs associated with any business. Let us discuss
the following in detail:

1. Direct Costs
It is a direct cost of production related to the goods and services of a business.
These are the variable costs that are directly related to the production facility.
Manufacturing supplies, direct labour, fuel, direct materials, and staff wages are the
types of direct costs. These are variable in nature since the unit cost can change
over time depending on the quantity being used over time. They may also include
certain fixed costs.

2. Indirect Costs
These are the expenses associated with business activities that may not be directly

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related to a project activity. However, these costs are still important for business
operations. These are not directly accountable to a cost object. These may be
either variable or fixed costs in nature. Fixed indirect costs refer to those activities
fixed for a project. These may include the cost of transportation of labour to the
site. Recurring indirect costs include activities that are repeated for the company
such as salary payments. Administration, security, and personnel costs are some
examples of indirect costs.

3. Operating Costs
These are the cost associated with the maintenance and business administration
on a daily basis. These costs are deducted from the revenue to identify the
operating income. These are reflected on the income statement of the company.
These include operating expenses known as selling, general and administrative
(SG&A), and direct costs of goods sold (COGS). Rent, payroll, and overhead costs
are included in the operating costs.

4. Fixed Costs
As the name suggests, these costs are not affected by the number of goods sold
or produced. These costs are the expenses that the company needs to pay
regardless of any business activity. These may be established through schedules
and contract agreements and hence do not change until the timeline.

5. Variable Costs
These are the corporate expenses that change according to production and sales.
One variable example would include the cost of raw materials. As the sales go up,
the requirement for raw materials goes up and hence the cost goes up. Variable
cost can be calculated as the product of total output quantity and variable cost per
unit of output.

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 Element s of Cost in Cost Account ing
Elements o f co st include Material, Labo r, and Overhead co sts. Material co sts
are the expenses o n raw materials, Labo r co sts enco mpass wages and
salaries, while Overhead co sts co ver indirect expenses like...re ad m o re

All About Management Accounting

Management accounting or managerial accounting is the process of identifying,
assessing, and interpreting financial information for managers. The aim of this type
of accounting is to achieve organizational goals. This is meant for internal
purposes so that the company can make better business decisions. The aim is to
deliver accurate information related to business operation metrics. Management
accounting f unctions include forecasting and planning, organizing, coordinating,
performance analysis, etc. This branch of accounting has the following objectives:

Maximizing prof its and minimizing losses in the business

Identif ying inconsistencies in f inances to take better business
decisions
Observing current f inancial inf ormation to assess the impact of
business decisions

Using the inf ormation to set objectives, and plans and compare the
perf ormance of various departments
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Types of Management Accounting

There are different types of managerial accounting including the following:

1. Cash Flow Analysis

Managerial accounting uses this analysis to determine the impact of cash on

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business decisions. Different working capital management strategies are
implemented to optimize the cash flow. This ensures that the company has
sufficient liquid assets for covering short-term obligations.

2. Constraint Analysis
This is also a part of managerial accounting. The aim of constraint analysis is to
review principal bottlenecks, causes, and impacts on profit, cash flow, and revenue.
It involves the review of constraints within the production line and sale process.
Through this financial data, management can improve the production and sales
process efficiency and implement required changes.

3. Financial Leverage
Financial leverage indicates the use of borrowed capital for acquiring assets to
increase returns on investments. Accountants can help the company study debt
and equity mix to optimize the leverage. This can be done through the analysis of
the balance sheet .

What is t he Dif f erence Bet ween Financial, Cost and…

Management Account ing?
Financial, Co st and Management Acco unting are the three main branches o f
acco unting. All these three branches have different purpo ses. While financial acco unting is fo r bo th public
and private use, co st...re ad m o re

Account ing Cycle: Phases, Benef it s and Need

The acco unting cycle refers to the co mprehensive pro cedure o f reco gnizing,
examining, and do cumenting a co mpany’s financial activities. This ro utine 8 -
step metho d starts with the initiatio n o f a transactio n and co ncludes...re ad
m o re

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o n 0 8 -Mar-20 24.
 Dif f erence Bet ween Cost Account ing and Financial…
Account ing
Co st acco unting and financial acco unting are two o f the main acco unting
metho ds that are widely used by acco untants the wo rld. While co st acco unting calculates the to tal co st,
financial acco unting invo lves...re ad m o re

Dif f erence Bet ween Financial Account ing and…

Management Account ing
Acco unting has three main types including co st acco unting, financial acco unting
and management acco unting. All three types serve different purpo ses and functio ns. In this article, we will
discuss the difference between...re ad m o re

Difference Between Cost Accounting and

Management Accounting
Following are the difference between cost accounting and management
accounting.

Management
Parameter Cost Accounting
Accounting
Quantitative and
Inf ormation Quantitative data
qualitative data
Determination of the
Purpose Improving the ef f iciency
cost and cost control
Both cost accounting and
Cost accounting
Principles Used f inancial accounting
principles
principles

Specif ic
Yes No
Procedure

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o n 0 8 -Mar-20 24.
 Audit It may be required in
Not required
Requirement certain cases
Planning Short term Short-term and long term
Can be installed Cannot be installed
Interdependency without management without f inancial
accounting accounting
Both past and present
Data Record Future projections
data

Both branches of accounting have different purposes and one cannot subdue the
importance of the other. Hope this article explains the difference between cost
accounting and managerial accounting. You can further check out other articles to
understand the difference between all three branches of accounting.

FAQs

What are the f unctions of management accounting?

What are the techniques used in management accounting?

What are the three f unctions of cost accounting?

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