Cost, costing, cost accounting and cost accountancy are normally used interchangeably but they are not synonyms of each other. 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 and cost accountancy is the practice of costing and cost accounting.
Cost is commonly defined as ‘sacrificed resource’ for a particular thing. If we buy a watch for $30, a number of dollars are considered to be the cost of that watch. Here, 30 dollars are sacrificed to obtain a watch. It is the simplest example but cost can be of anything which is measurable in terms of money. For example, the cost of preparing one pizza which in itself include various other costs like cost of flour, other ingredients, labor, electricity and other overheads. Just the same way, 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 real 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 most 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 basically the next step to costing. Cost accounting involves analyzing relevant costing data, interpret it and present various management problems to management. The scope of cost accounting involves preparation of various budgets for an organization, determining standard costs based on technical estimates, finding and comparing with actual costs, ascertaining the reasons of by variance analysis etc.
This term is over and above costing and cost accounting. It envisages 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 determination of selling price for the products, division and unit wise profitability. Forecasting of expenses and future probable incomes is also a part of the practice of Cost Accountancy.