Cost, costing, cost accounting, and cost accountancy are normally used interchangeably but are not synonyms. The meaning of these terms is related and similar, but there are differences. Cost is a sacrificed resource to obtain something; costing is a process of determining costs; cost accounting is a technique to assist management in establishing various budgets, standards, etc. Cost accountancy is the practice of costing and cost accounting. Let us see more about the cost vs. costing vs. cost accounting vs. cost accountancy.
Cost is commonly defined as a ‘sacrificed resource’ for a particular thing. If we buy a watch for $30, a number of dollars is considered to be the cost of that watch. Here, 30 dollars are sacrificed to obtain a watch. It is the simplest example, but the cost can be of anything which is measurable in terms of money. For example, the cost of preparing one pizza itself includes various other costs like the cost of flour, other ingredients, labor, electricity, and other overheads. Similarly, the cost of production of any product or service can be determined.
‘Cost’ is a term, whereas ‘Costing’ is a process for determining the cost. It may be called a technique for ascertaining the cost of production of any product or service in the business organization. The actual scope of this term can best be understood in the context of big manufacturing concerns who produce hundreds of products and spend a lot of money on material, labor, and other overheads. The cost of each product in those organizations requires recording expenses with to each product or process, classifying expenses like direct material, labor, overheads, etc., allocating direct expenses, and suitable apportionment of overheads to each product for the correct determination of per-unit cost of production of each product.
This term is of utmost importance for the top management of any business. Cost Accounting is the next step to costing. Cost accounting involves analyzing relevant costing data, interpreting it, and presenting various management problems to management. The scope of cost accounting consists of preparing various budgets for an organization, determining standard costs based on technical estimates, finding and comparing with actual costs, ascertaining the reasons by variance analysis, etc.
This term is over and above costing and cost accounting. It envisages the application of costing and cost accounting in a business setup. Cost Accountancy facilitates management with cost control initiatives, ascertainment of profitability, and informed decision-making. It also includes determining the selling price for the products, division, and unit-wise profitability. Forecasting expenses and probable future incomes are also a part of the practice of Cost Accountancy.
Read Costing Terms to learn about various other basic terms.