Difference between Cost Accounting and Management Accounting

Introduction:

Cost accounting and management accounting both are internal to a business enterprise. Both share the same goals in aiding management with its planning, decision-making, monitoring, and control processes. Did you know that the techniques such as budgetary control, marginal costing, and standard costing owe their existence to cost accounting and have slid into the management accountant’s set of roles?

There is a considerable deal of overlapping in their functions. However, the two structures can be distinguished on the following grounds:

Key points of difference - Difference between cost accounting and management accounting
Difference Between Cost Accounting and Management Accounting
1. What they mean?

Management accounting is mostly concerned with the requirements of an enterprise’s management. It involves the application of appropriate techniques and concepts which enable management to develop a plan for a realistic economic objective. It helps to make informed decisions for the achievement of management goals.

In cost accounting, the primary emphasis is on cost (and elements of cost) and it includes the collection, recording, examining, and assessment of a company’s total cost spent on production during a relevant accounting period. This cost is commonly known as the “cost of production”.

2. What do they deal with?

Cost accounting is more concerned with the measurement, allocation, distribution, and accounting facets of costs. But management accounting is more concerned with the dimensions of effect and impact of costs.

3. Objective

A cost accountant records the cost of producing a product and providing a service. Whereas, a management accountant provides information to management personnel for planning, decision-making, and coordination.

4. What is their base?

Cost related data typically acts as a basis on which the tools and techniques of management accounting can be applied to ensure that it becomes more purposeful and more managerial-oriented. But essentially, the management accounting data is derived from the combination of both cost accounts and financial accounts.

5. What is their scope?

A management accountant puts the data in a broader context than a cost accountant. This accounts for a higher level of relevance, importance, and objectivity in management accounting than in costing systems.

It is the management accountant who should have a good view of the elements and types of costs needed to evaluate and decide on particular business issues and the effects of those costs on potential solutions. The work of a cost accountant is undoubtedly useful in gathering such costing data for the management accountant.

6. Hierarchy

In the organizational setting, the management accountant is usually positioned at a higher level of hierarchy than the cost accountant.

7. What is their approach?

The methodology of the cost accountant is way smaller (narrower) than that of the management accountant, who may need to use some economic and statistical data, along with the costing data to make the management more effective and accurate in its planning, decision-making, and control functions.

8. Techniques used

In addition to methods and techniques such as variable costing, break-even analysis, standard costing, etc., which are available to costing systems, management accounting also uses other techniques such as cash flow, ratio analysis, etc. which do not fall within the scope of the former.

9. Coverage

Management accounting covers both financial and cost accounting. It also includes tax planning and tax accounting. On the other hand, cost accounting does not entail financial accounting and does not have much to do with tax accounting.

10. Long-term/ short-term planning

Management accounting is equally concerned with short-term and long-term planning and uses extremely advanced methods such as sensitivity analysis, probability structures, etc. in cost planning and forecasting. Cost accounting is more concerned with short-term costs. Moreover, the evaluation of capital investment ventures is a specialty of the management accountant.

11. Management’s performance

Management accounting is concerned both with assisting the management in its duties and also with assessing the success of management’s performance as an entity. On the flip side, cost accounting is concerned only with assistance in management activities and does not provide for the measurement of management’s efficiency.

12. Which is more predictive?

Cost accounting is mainly historical in its perspective and it estimates (or gauges) the past. Management accounting in its methodology is futuristic. Management accounting is of a more predictive nature than cost accounting.

13. Dependence

The costing system can be installed without a management accounting system. While management accounting cannot be developed without a decent cost accounting system in place.

Comparison table – Difference between the two

Basis of differenceCost AccountingManagement Accounting
ObjectiveAscertain the cost of producing a product and providing a serviceProvide information to management for planning and decision-making
Deals withMeasurement, allocation, distribution, and accounting aspects of costsDeals with effect and impact of costs
ContextNarrowBroad
HierarchyLowerHigher
Financial accountingDoes not include financial accountingIncludes both financial accounting and cost accounting
PeriodShort-termBoth short-term and long-term
Management’s efficiencyDoes not measure the performance of managementMeasures the performance of management
NatureHistoricalPredictive
DependenceA cost accounting system can be installed without management accounting.The management accounting system cannot be installed without cost accounting.

Takeaway

Cost accounting and management accounting are interdependent, greatly related, and inseparable.

While cost accounting deals with cost ascertainment only, managerial accounting is wider in scope as it includes financial accounting, cost accounting, budgeting, taxation, planning, etc.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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