Table of Contents
What is Costing?
Costing is a system of determining or assigning the cost of an element or product, or business. Everything sold has some worth, and the costing system gives it. The price of anything or a product is set for customers, employees, geographic regions, distribution channels, product or product lines, subsidiaries, and the entire company.
Costing is the value that is spent to make or produce something in production. It can also be a service for which a specific cost is paid. In business, the cost can be one of an acquisition used to acquire an amount.
In business, money is an input that is used to obtain something. The investment cost in the company can be the sum of production costs incurred by the original producer, and transaction costs may be higher than the acquirer’s price paid to the producer. Generally, a profit markup is also included in the cost of production. Costing is crucial in making any business successful and retaining customers by focusing on affordability.
Cost accounting is the systematic measurement of Manufacturers’ overall costs. It is a system used for making, recording, and reporting the cost of manufacturing goods and performing services collectively and in detail. Companies’ internal management teams use this to identify production costs, variables, and fixed costs. In it, the overall individual cost is recorded and measured then it is compared with the output to measure the financial performance of an organization for making future business decisions.
In cost accounting, different costs are involved, like fixed, variable, operating, direct, indirect, and profit margins. All these things in cost accounting help any organization evaluate its financial performance and aid in making future decisions for the company. It enables the management of an organization to optimize business by adopting cost-effective practices, processes, and capabilities.
It provides detailed cost information to the management for controlling, planning, and implementing operations smoothly and effectively. It helps in decision-making and business optimization.
Difference Between Costing and Cost Accounting
Costing and cost accounting both contribute significantly to management and accounting. Both help to analyze business needs and essential decision-making for effective and optimum business growth and to settle down financial burdens and costs.
- The main difference between costing and cost accounting is that costing involves determining or assigning costs to any product, service, or entity. In contrast, cost accounting is a mechanism for evaluating overall manufacturer costs and business expenditures.
- Costing involves setting the cost of anything, whereas cost accounting help to collect and use this vital data in critical decision-making and business optimization.
Comparison Between Costing and Cost Accounting
|Definition||Costing is a system of determining or assigning the cost of an element or product, or business.||Cost accounting is the systematic measurement of Manufacturers’ overall Costs.|
|Meaning||Costing is a technique or a process for setting costs according to customers’ needs and affordability.||It is a branch of accounting that helps to evaluate the overall business and help in making important decisions.|
|Scope||Effective costing can help you in making your business successful.||Cost accounting is associated with analyzing overall business expenditures.|
|Principle||Costing does not require strict accounting principles to follow.||Cost accounting accounts for strict accounting principles.|
|Importance||Costing helps you evaluate your customer need, affordability, and competitor’s activity.||Cost accounting allows individuals and companies to make vital decisions according to their needs to optimize it.|
- Drury, C., 2013. Costing: an introduction. Springer.
- Drury, C.M., 2013. Management and cost accounting. Springer.