define cost accounting

📘 Definition of Cost Accounting

Cost Accounting is a branch of accounting that deals with recording, classifying, analyzing, and controlling costs related to producing goods or providing services.

👉 In simple words:
Cost Accounting helps a business find out how much it costs to make a product or deliver a service.

🔹 Formal Definition

According to the Chartered Institute of Management Accountants (CIMA),
“Cost accounting is the process of accounting for cost from the point at which expenditure is incurred to the establishment of its ultimate relationship with cost centres and cost units.”

🔹 Main Objectives of Cost Accounting
Objective Description
1. Cost Control Helps identify where costs can be reduced or controlled.
2. Cost Determination Finds the exact cost of products, jobs, or processes.
3. Cost Reduction Suggests ways to minimize waste and improve efficiency.
4. Profit Planning Helps set selling prices and forecast profits.
5. Decision Making Provides data for managerial decisions like “Make or Buy”, pricing, etc.
🔹 Features of Cost Accounting

Focuses on cost per unit of output.

Classifies costs as materials, labor, and overheads.

Used mainly by management (internal use), not outsiders.

Helps in budgeting and performance evaluation.

🔹 Example

Suppose a factory produces 1,000 chairs.

Total Material Cost = ₹50,000

Total Labor Cost = ₹30,000

Total Overheads = ₹20,000

➡️ Total Cost = ₹1,00,000
➡️ Cost per Chair = ₹100

🔹 Difference Between Cost Accounting & Financial Accounting
Basis Cost Accounting Financial Accounting
Purpose Control & decision-making Recording financial transactions
Users Internal (management) External (owners, govt., investors)
Time Focus Future-oriented Past-oriented
Reports Cost sheets, budgets Balance sheet, P&L account