Management accounting is mainly related with future events, whereas cost accounting mainly related with :
Both 1 and 2
Understanding the Time Focus of Cost Accounting and Management Accounting
Let's break down how Management Accounting and Cost Accounting differ in their focus on time periods, specifically Past Events, Present Events, and Future Events. Understanding this difference is key to grasping their respective roles in an organization's Accounting Focus.
Focus of Management Accounting
Management Accounting is primarily concerned with providing information to internal managers to help them make decisions about the future. This involves planning, controlling, and decision-making. Therefore, Management Accounting heavily relies on predicting and influencing Future Events.
- It uses historical data but extrapolates or modifies it for future projections.
- It deals with budgets, forecasts, performance evaluation against future goals, and strategic planning.
Focus of Cost Accounting
Cost Accounting is a significant part of both Management Accounting and Financial Accounting. Its main role is to record, classify, analyze, and report costs. While the information generated by Cost Accounting is used for future decision-making (Management Accounting), the process of determining these costs involves looking at actual costs incurred and current costs.
- Past Events: Cost Accounting records historical costs, such as the actual cost of raw materials purchased, labor incurred, and overheads allocated during a specific period. Analyzing these Past Events helps in understanding cost behavior and evaluating past performance.
- Present Events: It also deals with current costs being incurred in the production process. This includes tracking work-in-progress, current labor costs, and materials currently being used. Determining the cost of products or services at the current point in time involves considering Present Events related to resource consumption and expenditure.
The data from Cost Accounting, covering both Past Events and Present Events, provides the foundation for management to make informed decisions about future pricing, production levels, and cost control strategies. The Accounting Focus of cost accounting is therefore rooted in recording and analyzing costs as they happen or have happened.
Comparing Time Focus
| Accounting Type | Primary Time Focus |
|---|---|
| Management Accounting | Future Events (for decision making) |
| Cost Accounting | Past Events and Present Events (for cost determination and analysis) |
While Management Accounting's Accounting Focus is clearly on the future, Cost Accounting primarily records and analyzes data from Past Events and Present Events to provide this data. Therefore, Cost Accounting is mainly related with both past and present events.
Important Questions from Cost and Management Accounting
Match List I with List II
List I
(Type of Costing)
List II
(Description)
A. Marginal Costing I. Integrated approach to determine product features, product price, product costs and product design that helps ensure a company to earn reasonable profit on new products. B. ABC Costing II. The amount of any given volume of output by which the aggregate costs are changed if the volume of output is increased by one unit. C. Target Costing III. Used when identical units are produced through an on-going series of production steps. D. Process Costing IV. Costing system in which costs being with tracing of activities and then to producing the product. Choose the correct answer from the options given below:
Which one of the following is PV ratio for the company?
Which one of the following is the break-even point in units for the company?
Which one of the following is the break-even point in terms of rupees?
Which one of the following is desired sales volume in units to earn a profit of Rs. 60,000?
