Cost and Management Accounting
Cost and management accounting is a kind of method adopted to find out the total cost of producing units and recording the same. It provides us the basis of making the appropriate decisions which are cost efficient based on the information collected. There are no specific rules or procedures prescribed for the preparation and presentation of cost and management accounting. Therefore, there are many different methods for cost and management accounting among different companies.
Capital Budgeting / Decision Making
Capital budgeting is the technique used to make long term investment decisions. Different projects are analysed to find out the best profitable alternative. Net present value is found out of different projects and best profitable course of action is chosen for the purpose of investing in that project using different techniques like IRR, profitability index, cost-benefit analysis, etc
Standard costing is one of the subtopic of cost and management accounting. Standard costs are defined based on the analysis of past data and actual costs are compared with the actual cost in order to find out the variances. Based on variances, the management tries to redefine standard cost and attempts to achieve the defined standard cost.
Absorption costing is one method of cost and management accounting. It assumes that all the manufacturing costs are absorbed by the units produced. It considers variable as well as fixed cost and that is the reason it is also known as full costing or full absorption method. Absorption costing is required for income tax reporting purposes.
Marginal costing is a technique which is opposite to absorption costing method. Marginal costing considers only variable cost to find out profitable product. This technique is used to evaluate the impact of variable cost on the production volume. Contribution approach is used mainly in marginal costing. Break-even analysis is an integral part of marginal costing.
Budgetary costing is also a technique used in cost and management accounting. In budgetary costing, companies prepare different budgets and they produce and sell products according to the pre-planned budgets. It involves preparation of standard budgets, steps to achieve the target budgets and comparison of actual with the standard budgets.
Process costing is about costing of different processes. It helps tracing and accumulating direct as well as indirect costs of different manufacturing processes. Costs are assigned to products in large batches and then average cost is assigned to each product. It is a method of assigning costs to different products producing homogeneous products in large quantities.
Joint product costing
Joint product costing is applied when a business has a process of producing units where products split off at a later stage of production. Till the time the products are not split off, it is called joint product. Joint product cost is allocated to different products using specific techniques which can be based on weight or other measures of production volumes.