Cost and management accounting is a system used primarily by managers for internal financial purposes. The focus of cost and management accounting is typically on efficient and effective use of company resources, which include people and equipment. Through data collection and daily reporting, managers may use cost and management accounting primarily for two purposes: short and long-term strategic planning and daily decision-making.
There is a relationship between cost accounting and management accounting, but each have a separate meaning and function in business operations. Cost accounting is used to capture data associated with the ongoing expenditures of operating a department. While management accounting uses this data to interpret the weight that these expenditures have on accomplishing business goals. Merging these two functions produce data that managers use to control the cost of doing business.
The type of data collection that supports cost and management accounting typically includes a system to track labor and the use of equipment. With labor, the system may involve using time cards or labor tracking software to determine its portion of operational costs. An equipment tracking system might use department codes for copying and printing.
Management accounting encapsulates reporting tools for making operational decisions and developing strategic plans. Typically, management accounting focuses on the daily reports that direct short-term decision-making. The reports assist managers with aligning costs with production outputs to minimize waste and low productivity.
In general, cost and management accounting is part of the reporting tool that facilitates the decision-making and strategic planning techniques for managers within a company. Reports may determine the costs of using equipment and inventory, which helps managers establish budgets to determine the actual costs within a specific department or the entire company operation. By applying the information in the reports, managers identify when costs exceed budgets, discover the cause of these overages, and implement changes as necessary to improve.
Used for decision-making, cost and management accounting determine the relevant costs of producing a product or service. The concepts of cost accounting capture a snapshot of the direct and indirect costs associated with daily operations. These costs may include parts, equipment, and labor. Generally, managers can use this information to make decisions such as the amount of production hours, the number of employees necessary for production hours, and how much inventory is needed to produce a product or service.
With strategic planning, managers have the opportunity to use this data to make long-term projections about the profitability of products or services. Essentially, the data compares budget projections and actual costs of daily operations. The financial measures used in cost and management accounting may identify effective methods for the utilization of resources to meet business goals and objectives.