Cost, Costing and Cost Accounting


The three terms, Cost Accounting, Costing and Cost, all are associated integrally with studies of fundamentals of accounting. Knowing them by heart is essential to continue understanding accounting in depth. The following essay is prepared with the aim of clearing the concept of all the three terms here and other things related to them. 

Cost Accounting 

When a company or organization’s cost accounting is in discussion, their business practice is referred to that involves the complete list of spending done by the company and recording them too for the purpose of summarizing ad examining afterwards. The spending might be for various reasons such as acquiring a product or service, completing a process and others. 

This way the cost spent can be studied and controlled if the need arises. Strategic plans can be formulated on the basis of cost accounting and cost efficiency is thus improved. The company authority is also aware of the cost information with improved visibility. Which areas need more cost approval and which section can do with lesser amounts sanctioned, can be identified from this. 

Marginal costing, lean accounting, activity-based costing and standard cost accounting are its various types. With the use of them the costs of goods and services and the expenditure made, both can be calculated. All the expenditures made are formatted in an organised way so that cost control is done efficiently by the management. Cost of selling, production cost and distribution cost all are determined from cost accounting. 

Characteristic Features of Cost Accounting

  • It is a branch of accounting involving the cost of goods and services. 

  • The data achieved is used in financial accounting. 

  • The costing data that are recorded in this helps the management in developing the budget. It is also used in future planning and decision making process by the organisation. 

  • The costs and budgets are determined based upon the cost accounting data.

  • Whether a particular process adapted by the company is efficient or not can be determined from this data. 

  • If time and resources are wasted, the same can be identified from cost accounting. 

Types of Cost Accounting

There are mainly four types of Cost Accounting namely,

  • Standard Accounting

  • Lean Accounting

  • Marginal Accounting

  • Activity based Costing

1. Standard Accounting

The cost that could have incurred for the production of a particular product or service and the cost that actually have incurred are compared by the companies. This is known as standard accounting. 

2. Lean Accounting

Manufacturers collect the processes and principles to access numerical feedback so that they can implement lean inventory and manufacturing practices. This is known as lean accounting. 

3. Marginal Accounting

Here all costs are divided under the heads “variable cost” and “fixed cost”. The former is directly proportional to production levels. But in this case the cost per unit, though a variable, remains unchanged. The latter, fixed cost, is not associated with production levels. Here, though production quantities vary, the cost remains fixed. 

4. Activity based Costing

As the name suggests, this method identifies activities in an organisation and allots cost of each of those activities as per the consumption. In this method overhead and indirect costs are also assigned. 

Objectives of Cost Accounting 

  • Determining the price of goods and services

  • Controlling the cost of production, distribution and sales

  • Classifying the costs

  • Fixing the production standard

Advantages of Cost Accounting

  • Price determination

  • Price reduction

  • Stock controlling

  • Efficiency measurement and improvement

  • Identification of time and resource waste

  • Future planning

  • Loss evaluation


Cost is the monetary amount in exchange of which products, services or resources are made available to the consumer. In commercial terms, cost is inclusive of effort, risks associated, materials used and opportunity costs. 

The expenditure as incurred during the production of a particular goods or service is also termed as cost. Thus, cost can be of various types such as factory cost, prime cost, sunk cost, indirect and direct cost etc. 


This is the method of ascertaining costs to various elements within a business performance. Historical costing and standard costing are some methods followed in costing. While variable costs are assigned to the various activities according to the performance, it is termed as direct costing. Fixed costs, when assigned to activities irrespectively, it is termed as absorption costing. 


Knowing costing, cost accounting and cost is of utmost importance in case of understanding accounting. When costing and accounting are applied together, it is termed as cost accountancy. This is the job of a cost accountant. The appropriate practice of this ensures the growth, development and profitability of a company or any business organisation.