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Cost Accounting involves monitoring a company’s production costs. It entails estimating raw material expenses and capital equipment depreciation at various production stages. This process individually examines and records production costs. Subsequently, initial forecasts or projections are juxtaposed with real outcomes to conduct variance analysis.

From the variance analysis management would be able to gauge how the company has performed financially. Companies use cost accounting to complement their decision support system which is absolutely vital. A group of investors would be more interested in financial accounting rather than cost accounting. Financial accounting represents costs and financial performance through the balance sheet of a company.

Management is infinitely benefited because of cost accounting as it aids and abets management in preparing budgets and agendas for controlling costs. The resultant positive effect is on net margins which are greatly improved with prospective effect. Cost Accounting could also be aptly defined as an accounting methodology that gather, categorize and record activities related to fulfilling a task.

Analysis of the synopsis of the data is done to determine a selling price or possible savings. In comparison with financial accounting where economic performance is measured in monetary terms, in cost accounting money is considered as an aspect of production-related to the economy. Cost accounting at one time was used in manufacturing only.

In this day and age, the service industry uses cost accounting as well. With regard to management accounting, the role of cost accounting is to ascertain budget, real operational cost, processes, departments or products and variance analysis of profits or how funds are used socially.