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All About Types of Cost Accounting

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Within cost accounting, there are several subtypes. Each of these is used by different types of companies or for various purposes. For example, lean cost accounting is for manufacturing companies implementing other lean practices.

The four main types of cost accounting are:

Standard: This is typical cost accounting; costs for each product line are calculated based on historical experience to be used for budgeting and forecasting.
Activity: Costs are allocated by individual business activity (each product line).
Lean: This is more specialized and designed to provide insights to manufacturing companies implementing other lean practices like lean manufacturing and lean inventory management. It’s more conservative than other types of accounting. For example, you only record the value of inventory over time.
Marginal: Marginal cost accounting only considers the variable cost for a specific product. Whereas other types of cost accounting allocate a portion of fixed costs to each product line, in marginal cost accounting, these costs are excluded. It assumes that fixed costs have to be paid whether a business takes on a certain activity or not, so they aren’t allocated to specific activities.
What is the difference between cost accounting and financial accounting?
Cost accounting focuses purely on a business’s costs, while financial accounting combines this information with other items, like revenue, liabilities, and shareholder equity, to provide a comprehensive look at a company’s finances.

Both cost and financial accounting are used to track elements of a business’s finances. This data helps guide company strategy, including informed decision-making. However, while cost accounting focuses on tracking costs and allocating those costs to specific offerings or activities, financial accounting tracks all aspects of a company’s finances. Financial accounting includes cost accounting, as well as other elements – such as income, liabilities, and equity – which it combines to provide comprehensive reports and insights into the company’s financial circumstances and future prospects.

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