Cost Accounting

Term Definition
Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization, where cost is defined as 'required time or resources'. Cost accounting is also defined as a type of management accounting, which translates the physical movement of products into financial value in order to support decision-making and improve costs and cash flows.

According to CIMA, The Chartered Institute of Management Accountants, Management Accounting is defined as "The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholders, creditors, regulatory agencies and tax authorities" (CIMA Official Terminology).

Standard Costing - costing by indirect and direct costs
Activity-based Costing - costing by activities
Marginal Costing - a methodology used for short-term decision-making.

The basic tenets are:

• Revenue (per product) - Variable Costs (per product) = Contribution (per product)
• Total Contribution - Total Fixed Costs = Total Profit / (Total Loss)
  

Throughput Accounting – defined by Dr. Eliyahu M. Goldratt. Throughput Accounting is not costing and it does not allocate costs to products and services. It can be viewed as business intelligence for profit maximization and rests on the following three definitions:

• Throughput: All of the money we make from selling our product. (Revenue minus Raw Material Cost.)
• Inventory: All of the money we have tied up in fixed assets to enable us to make the Throughput. (The primary difference here is that fixed assets and inventory are treated the same.)
• Operating Expense (OE): All of the money we spend to produce the Throughput.

Area of Application
Project Management

Related Terms
Activity Based Costing

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