Types of Cost Accounting

Cost Accounting :
• a systematic set of procedures for recording and
reporting measurements of the cost of manufacturing
goods and performing services in the aggregate and in
detail. It includes methods for recognizing, classifying,
allocating, aggregating and reporting such costs and
comparing them with standard costs.
• Costs can be classified into different categories for different purposes.

• Costs may be categorized according to their:

• management function,
• ease of traceability,
• timing of charge against revenue,
• behavior in accordance with activity, and
• relevance to decision making.
 For analyzing the various costs it is imperative
to first understand the types of costs.

• Fixed Costs

The costs that remain constant despite changes in production, process

or projects are referred to as fixed costs. For example, in a
manufacturing unit the salaries of the office staff will remain fixed
irrespective of the production.
• Variable costs
These costs vary with the production, process or project changes. For
example, in an organization manufacturing toy the material and labor
cost will be dependent on the production.

Opportunity cost
The cost incurred in selecting one option over another is called
opportunity cost.
Sunk Cost
Historical costs that will not make any difference in making a decision.
Unlike relevant costs, they do not have an impact on the matter at hand.

Controllable Cost
Refer to costs that can be influenced or controlled by the
manager. Segment managers should be evaluated based on costs that they can
control.
Types Of Cost Accounting
• Standard cost accounting:
This type of cost accounting uses different types of ratios to compare
how efficiently labor and materials are being used (or can be used) to
produce goods and services in standard conditions.

One of the issues associated with standard cost accounting is that it

emphasizes labor efficiency even though labor costs make up small
percentage of costs in modern companies.
Activity based cost accounting:
• This type of cost accounting is defined as “An approach to the costing
and monitoring of activities which involves tracing resource
consumption and costing final outputs, resources assigned to
activities, and activities to cost objects based on consumption
estimates.”
• Activity based costing is considered to be more accurate and, as such,
more useful to managers in understanding the cost and profitability
of their company’s products and services.
• Lean accounting:

• An extension of the philosophy of lean manufacturing and production

developed by Japanese companies, lean accounting emphasizes on
value-based pricing and lean-focused performance measurements.
• Marginal costing:

• Also called cost-volume-profit analysis, this type of cost accounting

involves analyzing the relationship between the company’s products,
sales volume, production amount, profits, costs and expenses.
• Because cost accounting is used as an internal management tool, it
does not have to adhere to any specific standards and varies from one
company to another.