cost and management accounting assignment

Cost Allocation – Meaning, Importance, Process and More

Cost Allocation or cost assignment is the process of identifying and assigning costs to the various cost objects. These cost objects could be those for which the company needs to find out the cost separately. A few examples of cost objects can be a product, customer, project, department, and so on.

The need for cost allocation arises because some costs are not directly attributable to the particular cost object. In other words, these costs are incurred for various objects, and then the sum is split and allocated to multiple cost objects. These costs are generally indirect. Since these costs are not directly traceable, an accountant uses their due diligence to allocate these costs in the best possible way. It results in an allocation that could be partially arbitrary, and thus, many refer cost allocation exercise as the spreading  of a cost.

Examples of Cost Allocation

• Cost Allocation – Importance

Cost Allocation Method

Define costs, identify cost objects, basis of allocation, accumulate costs into cost pool.

For example, a company’s CEO uses his car for personal and official purposes. So, if the CEO decides to allocate costs, then they will divide the cost (fuel, maintenance, etc.) for business and personal use based on usage.

The following examples will help us understand the cost allocation concept better:

• A company has a building in which there are various departments. One can allocate depreciation costs to the department on the basis square ft area of each department. This cost will then be further assigned to the products on which the department works.
• An accountant can attribute electricity that a production facility consumes to different departments. Then the accountant can assign the department’s electricity cost to the products that the department works on.
• An employee works on three products for a month. To attribute their salary to three products, an accountant can use the number of hours the employee gave to each product.

Cost Allocation – Importance

The following points reflect the importance of allocating costs:

• Allocating cost is essential for financial reporting, i.e., to correctly assign the cost among the cost objects.
• It allows the company to calculate the true profitability of the department or function. This profitability could serve as the basis for making further decisions for that department or service.
• If cost allocation is correct, it allows the business to identify and understand the costs at each stage and their impact on the profit or loss. On the other hand, if the allocation is incorrect, the company may end up making wrong or inconsistent decisions concerning the distribution of resources amongst various cost objects.
• The concept is also useful for finding the transfer prices when there is a transaction between subsidiaries.
• It helps a company make better economic decisions, such as whether or not to accept a new order.
• One can also use the concept to evaluate the performance of the staff.
• It helps in better explaining to the customers the costs that went into the pricing of a product or service.
• Allocation cost helps a company know where the money is going and how much. It will assist the company in using the resources effectively. Pool costs, if not allocated, may give an unbalanced view of the cost of various objects.

As such, there is no specific method to allocate costs. So, an accountant needs to use his or her due diligence to assign a cost to the cost object. Of course, they are considering the practice adopted in a similar industry. For instance, the accountant may decide to allocate expenses based on headcount, area, weightage, and so on.

Also Read: Cost Object – Meaning, Advantages, Types and More

Irrespective of the method an accountant uses, their objective should be to allocate the cost as fairly as possible. Or to allocate cost in a way that is in line with the nature of the cost object. Or to lower the arbitrariness in awarding costs.

Several efforts are underway to better cost allocation techniques. For instance, the overhead allocation for manufacturers, which was on plant-wide rates, is now based on departmental standards. Also, accountants use machine hours instead of direct labor hours for allocation.

Moreover, some accountants are also implementing activity-based costing to better the allocation. So, there can be several ways to allocate costs. But, whatever form the company selects, it is essential to document the reasons backing that method, and that need to be followed consistently for several periods.

A company can ensure documentation by developing allocation formulas or tables. Moreover, if a company wants, it can also pass supporting journal entries to transfer costs to the cost objects or do it via the chargeback module in the ERP system.

Also Read: Cost Hierarchy – Meaning, Levels and Example

Nowadays, cost allocation systems are available to assist in cost allocation. Such systems track the entity that produces the goods or services and the body that consumes those goods or services. The system also identifies the basis to distribute the cost.

The process to Allocate cost

As said above, there are no specific methods for allocating costs. Similarly, there is no particular process for it, as well. However, the process we are detailing is one of the most popular, and many companies use it for allocating costs. Following is the process:

Before allocating the cost, a company must define the various types of costs. Generally, there are three types of costs – direct, indirect, and overhead. Direct costs are those that one can easily attribute to a product or service, such as wages to factory workers or raw material for the specific product.

Indirect costs are ones that a company needs to incur for its operations, such as administration costs. Primarily, these are the costs that a company needs to allocate as it is difficult to attribute them directly to a product or service or any other cost object.

Another type of cost is an overhead cost , which is also an indirect cost. These costs are incurred for the production and selling of goods or services. Such costs do not vary based on production or sales. A company needs to pay them even if it is not producing or selling anything. Research and development costs, rent, etc., are good examples of such a cost.

The company or the accountant must know the cost objects for which they need to allocate the cost. It is crucial as we can’t assign costs to something on which we have no information. A cost object could be the product, customer, region, department, etc.

Along with the cost object , the company must also determine the basis on which it would allocate the cost. This basis could be the number of hours, area, headcount, and more. For example, if headcount is the basis of allocation for insurance costs and a company has 500 employees, then the department with 100 employees will account for 20% of the insurance cost. Experts recommend choosing a cost allocation base that is a crucial cost driver as well.

A cost driver is a variable whose increase or decrease leads to an increase or decrease in the cost as well. For instance, the number of purchase orders could be a cost driver for the cost of the purchasing department.

An accountant may create many categories to pool costs, which are to be allocated subsequently. It is the account head where the costs should be accumulated before assigning them to the cost objects. Cost pools can be insurance, fuel consumption, electricity, rent, depreciation, etc. The selection of the cost pool primarily depends on the use of the cost allocation base.

Continue reading – Costing Terms .

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Sanjay Bulaki Borad

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Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

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What Is Cost Accounting?

Understanding cost accounting.

• Cost vs. Financial Accounting
• Cost Accounting FAQs

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Cost Accounting: Definition and Types With Examples

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

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Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing all of its variable and fixed costs.

Cost accounting is not compliant with generally accepted accounting principles (GAAP); this accounting method is only used by businesses for internal purposes.

Key Takeaways

• Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing both its variable and fixed costs.
• There are different types of cost accounting, including standard costing, activity-based costing (ABC), lean accounting, and marginal costing.
• Cost accounting is not compliant with generally accepted accounting principles (GAAP); therefore, it is only used internally to help companies make fully informed business decisions.
• Unlike financial accounting, which provides information to external financial statement users, cost accounting is not shared externally, so its methods can be tailored to meet the particular needs of a company.

Investopedia / Theresa Chiechi

Cost accounting is used by a company's internal management team to identify all variable and fixed costs associated with its production processes. Once all input costs are measured and recorded individually, a company can compare all of these costs to its output results. This is one way for a company to measure its financial performance and make future business decisions.

Types of Costs

Cost accounting attempts to capture all of a company's costs, both variable and fixed. While the exact costs used in cost accounting vary from industry to industry—and business to business—these cost categories will typically be included: direct costs, indirect costs, variable costs, fixed costs, and operating costs.

• Fixed costs are costs that don't vary depending on the level of production. These are usually things like the mortgage or lease payment on a building (or a piece of equipment) that's depreciated at a fixed monthly rate. An increase or decrease in production levels would cause no change in these costs.
• Variable costs are costs tied to a company's level of production. For example, a floral shop ramping up its floral arrangement inventory for Valentine's Day will incur higher costs when it purchases an increased number of flowers from a local nursery.
• Operating costs are costs associated with the day-to-day operations of a business. These costs can be either fixed or variable, depending on the unique situation of the business.
• Direct costs are costs related to producing a specific product. If a coffee roaster spends five hours roasting coffee, the direct cost of the finished product includes the labor hours of the roaster and the cost of the coffee beans.
• Indirect costs are costs that cannot be directly linked to a product. In the previous coffee roaster example, the energy cost to heat the coffee roaster is an indirect cost because it is inexact and difficult to trace to any individual products.

Cost Accounting vs. Financial Accounting

Financial accounting presents a company's financial position and performance to outside investors and creditors through financial statements , which include information about its revenues , expenses , assets , and liabilities .

While financial accounting presents information for external sources to review, cost accounting is often used by management within a company to aid in decision-making. Cost accounting can be beneficial as a tool to help management with budgeting. It can also be used to set up cost-control programs, with the goal of improving net margins for the company in the future.

Another key difference between cost accounting and financial accounting is that, while in financial accounting the cost is classified depending on the type of transaction, cost accounting classifies costs according to the information needs of the management. 

Cost accounting, because it is used as an internal tool by management, does not have to meet the standards set forth by  generally accepted accounting principles (GAAP) and, as a result, varies in use from company to company.

Cost accounting methods are typically not used to determine tax liabilities.

Types of Cost Accounting

Standard costing.

Standard costing assigns "standard" costs—rather than actual costs—to its cost of goods sold (COGS) and inventory. These standard costs are based on the most efficient use of labor and materials to produce the good or service under standard operating conditions; these standard costs are basically the budgeted amount. (Even though standard costs are assigned to the goods, the company still has to pay actual costs.)

Assessing the difference between the standard—most efficient—cost and the actual cost incurred is called variance analysis. If the variance analysis determines that actual costs are higher than expected, the variance is unfavorable. If it determines the actual costs are lower than expected, the variance is favorable.

Two factors can contribute to a favorable or unfavorable variance: the cost of the input and the efficiency (or quantity) of the input. The cost of the input is the cost of labor and materials. This is considered to be a rate variance.

The efficiency or quantity of the input used is considered a volume variance. For example, if XYZ company expected to produce 400 widgets in a period but ended up producing 500 widgets, the cost of materials would be higher due to the total quantity (volume) produced.

Activity-Based Costing (ABC)

Activity-based costing (ABC) identifies overhead costs from each department and assigns them to specific cost objects, such as goods or services. ABC cost accounting is based on activities, which refer to any event, unit of work, or task with a specific goal—such as setting up machines for production, designing products, distributing finished goods, or operating machines. These activities are also considered to be cost drivers , and they are the measures used as the basis for allocating overhead costs .

Traditionally, overhead costs are assigned based on one generic measure, such as machine hours. Under ABC, an activity analysis is performed where appropriate measures are identified as the true cost drivers. As a result, ABC cost accounting tends to be much more accurate and helpful when reviewing the cost and profitability of a company's specific services or products.

For example, suppose there is a company that produces both trinkets and widgets. The trinkets are very labor-intensive and require quite a bit of hands-on effort from the production staff. The production of widgets is automated; it mostly consists of putting raw material in a machine and waiting many hours for the finished goods. It would not make sense to use machine hours to allocate overhead to both items because the trinkets hardly use any machine hours. Under ABC, the trinkets are assigned more overhead costs related to labor and the widgets are assigned more overhead costs related to machine use.

Lean Accounting

The goal of lean accounting is to improve financial management practices within an organization. Lean accounting is related to lean manufacturing and production, which has the stated goal of minimizing waste while optimizing productivity. For example, if an accounting department is able to cut down on wasted time, employees can focus that saved time more productively on value-added tasks.

When using lean accounting, traditional costing methods are replaced by value-based pricing  and lean-focused performance measurements. Financial decision-making is based on the impact on the company's total value stream profitability. Value streams are the profit centers of a company; a profit center is any branch or division that directly adds to a company's bottom-line profitability.

Marginal Costing

Marginal costing (sometimes called cost-volume-profit analysis ) examines the impact on the cost of a product by adding one additional unit into production. It is useful for short-term economic decisions. Marginal costing can help management identify the impact of varying levels of costs and volume on operating profit. This type of analysis can be used by management to gain insight into potentially profitable new products, sales prices to establish for existing products, and the impact of marketing campaigns.

The  break-even point —which is the production level where total revenue for a product equals total expense —is determined by calculating the total fixed costs of a company and dividing that by its contribution margin. The contribution margin , calculated as sales revenue minus variable costs, can also be calculated on a per-unit basis in order to determine the extent to which a specific product contributes to the overall profit of the company.

History of Cost Accounting

Scholars believe that cost accounting was first developed during the Industrial Revolution; the emerging economics of industrial supply and demand forced manufacturers to start tracking their fixed and variable expenses to optimize their production processes.

How Does Cost Accounting Differ From Traditional Accounting Methods?

In contrast to general accounting or financial accounting, cost accounting is an internally focused, firm-specific method used to implement  cost controls . Cost accounting can be much more flexible and specific, particularly when it comes to the subdivision of costs and inventory valuation. Cost-accounting methods and techniques will vary from firm to firm and can become quite complex.

Why Is Cost Accounting Used?

Cost accounting is helpful because it can identify where a company is spending its money, how much it earns, and where money is being lost. Cost accounting aims to report, analyze, and improve internal cost controls and efficiency. Even though companies cannot use cost-accounting figures in their financial statements (or for tax purposes), they are important for internal controls.

Which Types of Costs Go Into Cost Accounting?

These will vary from industry to industry and firm to firm. However, certain cost categories will typically be included (some of which may overlap), such as direct costs, indirect costs, variable costs, fixed costs, and operating costs.

What Are Some Advantages of Cost Accounting?

Since cost-accounting methods are developed by—and tailored to—a specific firm, they are highly customizable and adaptable. Cost accounting is useful because it can be adapted, tinkered with, and implemented according to the changing needs of a business. Unlike the  Financial Accounting Standards Board (FASB) -driven financial accounting, cost accounting need only concern itself with insider eyes and internal purposes. Management can analyze information based on criteria that it specifically values; that information can then be used to guide how prices are set, resources are distributed, capital is raised, and risks are assumed.

What Are Some Drawbacks of Cost Accounting?

Cost-accounting systems, and the techniques that are used with them, can have a high start-up cost to develop and implement. Training accounting staff and managers in new accounting systems takes time and effort, and mistakes may be made early on. Higher-skilled  accountants  and  auditors  are likely to charge more for their services when evaluating a cost-accounting system.

Cost accounting is one method a company can use to estimate how well the business is running. Cost accounting looks to assess the different costs of a business and how they impact operations, costs, efficiency, and profits. Individually assessing a company's cost structure allows management to improve the way it runs its business and, therefore, improve the value of the firm. Since it is not GAAP-compliant, cost accounting cannot be used for a company's audited financial statements released to the public. Figures from cost accounting are meant to be internal metrics only.

Fleischman, Richard K., and Thomas N. Tyson. "The Economic History Review: Cost Accounting During the Industrial Revolution: The Present State of Historical Knowledge." Economic History Review , vol. 46, no. 3, 1993, pp. 503-517.

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What is Cost Allocation?

Types of costs, cost allocation mechanism, what is a cost driver, benefits of cost allocation, additional resources, cost allocation.

The process of identifying, accumulating, and assigning costs to costs objects

Cost allocation is the process of identifying, accumulating, and assigning costs to costs objects such as departments, products, programs, or a branch of a company. It involves identifying the cost objects in a company, identifying the costs incurred by the cost objects, and then assigning the costs to the cost objects based on specific criteria.

When costs are allocated in the right way, the business is able to trace the specific cost objects that are making profits or losses for the company. If costs are allocated to the wrong cost objects, the company may be assigning resources to cost objects that do not yield as much profits as expected.

There are several types of costs that an organization must define before allocating costs to their specific cost objects. These costs include:

1. Direct costs

Direct costs are costs that can be attributed to a specific product or service, and they do not need to be allocated to the specific cost object. It is because the organization knows what expenses go to the specific departments that generate profits and the costs incurred in producing specific products or services . For example, the salaries paid to factory workers assigned to a specific division is known and does not need to be allocated again to that division.

2. Indirect costs

Indirect costs are costs that are not directly related to a specific cost object like a function, product, or department. They are costs that are needed for the sake of the company’s operations and health. Some common examples of indirect costs include security costs, administration costs, etc. The costs are first identified, pooled, and then allocated to specific cost objects within the organization.

Indirect costs can be divided into fixed and variable costs. Fixed costs are costs that are fixed for a specific product or department. An example of a fixed cost is the remuneration of a project supervisor assigned to a specific division. The other category of indirect cost is variable costs, which vary with the level of output. Indirect costs increase or decrease with changes in the level of output.

3. Overhead costs

Overhead costs are indirect costs that are not part of manufacturing costs. They are not related to the labor or material costs that are incurred in the production of goods or services. They support the production or selling processes of the goods or services. Overhead costs are charged to the expense account, and they must be continually paid regardless of whether the company is selling goods or not.

Some common examples of overhead costs are rental expenses, utilities, insurance, postage and printing, administrative and legal expenses , and research and development costs.

The following are the main steps involved when allocating costs to cost objects:

1. Identify cost objects

The first step when allocating costs is to identify the cost objects for which the organization needs to separately estimate the associated cost. Identifying specific cost objects is important because they are the drivers of the business, and decisions are made with them in mind.

The cost object can be a brand , project, product line, division/department, or a branch of the company. The company should also determine the cost allocation base, which is the basis that it uses to allocate the costs to cost objects.

2. Accumulate costs into a cost pool

After identifying the cost objects, the next step is to accumulate the costs into a cost pool, pending allocation to the cost objects. When accumulating costs, you can create several categories where the costs will be pooled based on the cost allocation base used. Some examples of cost pools include electricity usage, water usage, square footage, insurance, rent expenses , fuel consumption, and motor vehicle maintenance.

A cost driver causes a change in the cost associated with an activity. Some examples of cost drivers include the number of machine-hours, the number of direct labor hours worked, the number of payments processed, the number of purchase orders, and the number of invoices sent to customers.

The following are some of the reasons why cost allocation is important to an organization:

1. Assists in the decision-making process

Cost allocation provides the management with important data about cost utilization that they can use in making decisions. It shows the cost objects that take up most of the costs and helps determine if the departments or products are profitable enough to justify the costs allocated. For unprofitable cost objects, the company’s management can cut the costs allocated and divert the money to other more profitable cost objects.

2. Helps evaluate and motivate staff

Cost allocation helps determine if specific departments are profitable or not. If the cost object is not profitable, the company can evaluate the performance of the staff members to determine if a decline in productivity is the cause of the non-profitability of the cost objects.

On the other hand, if the company recognizes and rewards a specific department for achieving the highest profitability in the company, the employees assigned to that department will be motivated to work hard and continue with their good performance.

Thank you for reading CFI’s guide to Cost Allocation. In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Break-Even Analysis
• Cost of Production
• Fixed Costs
• Fixed and Variable Costs
• Projecting Income Statement Line Items
• See all accounting resources
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Module 5: Job Order Costing

Introduction to accumulating and assigning costs, what you will learn to do: assign costs to jobs.

Financial and managerial accountants record costs of production in an account called Work in Process. The total of these direct materials, direct labor, and factory overhead costs equal the cost of producing the item.

In order to understand the accounting process, here is a quick review of how financial accountants record transactions:

Let’s take as simple an example as possible. Jackie Ma has decided to make high-end custom skateboards. She starts her business on July 1 by filing the proper forms with the state and then opening a checking account in the name of her new business, MaBoards. She transfers $150,000 from her retirement account into the business account and records it in a journal as follows:

For purposes of this ongoing example, we’ll ignore pennies and dollar signs, and we’ll also ignore selling, general, and administrative costs.

After Jackie writes the journal entry, she posts it to a ledger that currently has only two accounts: Checking Account, and Owner’s Capital.

Debits are entries on the left side of the account, and credits are entries on the right side.

Here is a quick review of debits and credits:

You can view the transcript for “Colin Dodds – Debit Credit Theory (Accounting Rap Song)” here (opens in new window) .

Also, this system of debits and credits is based on the following accounting equation:

Assets = Liabilities + Equity.

• Assets are resources that the company owns
• Liabilities are debts
• Equity is the amount of assets left over after all debts are paid

Let’s look at one more initial transaction before we dive into recording and accumulating direct costs such as materials and labor.

Jackie finds the perfect building for her new business; an old woodworking shop that has most of the equipment she will need. She writes a check from her new business account in the amount of $2,500 for July rent. Because she took managerial accounting in college, she determines this to be an indirect product expense, so she records it as Factory Overhead following a three-step process:

• Analyze transaction

Because her entire facility is devoted to production, she determines that the rent expense is factory overhead.

2. Journalize transaction using debits and credits

If she is using QuickBooks ® or other accounting software, when she enters the transaction into the system, the software will create the journal entry. In any case, whether she does it by hand or computer, the entry will look much like this:

3. Post to the ledger

Again, her computer software will post the journal entry to the ledger, but we will follow this example using a visual system accountants call T-accounts. The T-account is an abbreviated ledger. Click here to view a more detailed example of a ledger .

Jackie posts her journal entry to the ledger (T-accounts here).

She now has three accounts: Checking Account, Owner’s Capital, and Factory Overhead, and the company ledger looks like this:

In a retail business, rent, salaries, insurance, and other operating costs are categorized into accounts classified as expenses. In a manufacturing business, some costs are classified as product costs while others are classified as period costs (selling, general, and administrative).

We’ll treat factory overhead as an expense for now, which is ultimately a sub-category of Owner’s Equity, so our accounting equation now looks like this:

Assets = Liabilities + Owner’s Equity

147,500 = 150,000 – 2,500

Notice that debits offset credits and vice versa. The balance in the checking account is the original deposit of $150,000, less the check written for $2,500. Once the check clears, if Jackie checks her account online, she’ll see that her ledger balance and the balance the bank reports will be the same.

Here is a summary of the rules of debits and credits:

Assets = increased by a debit, decreased by a credit

Liabilities = increased by a credit, decreased by a debit

Owner’s Equity = increased by a credit, decreased by a debit

Revenues increase owner’s equity, therefore an individual revenue account is increased by a credit, decreased by a debit

Expenses decrease owner’s equity, therefore an individual expense account is increased by a debit, decreased by a credit

Here’s Colin Dodds’s Accounting Rap Song again to help you remember the rules of debits and credits:

Let’s continue to explore job costing now by using this accounting system to assign and accumulate direct and indirect costs for each project.

When you are done with this section, you will be able to:

• Record direct materials and direct labor for a job
• Record allocated manufacturing overhead
• Prepare a job cost record

Learning Activities

The learning activities for this section include the following:

• Reading: Direct Costs
• Self Check: Direct Costs
• Reading: Allocated Overhead
• Self Check: Allocated Overhead
• Reading: Subsidiary Ledgers and Records
• Self Check: Subsidiary Ledgers and Records
• Introduction to Accumulating and Assigning Costs. Authored by : Joseph Cooke. Provided by : Lumen Learning. License : CC BY: Attribution
• Colin Dodds - Debit Credit Theory (Accounting Rap Song). Authored by : Mr. Colin Dodds. Located at : https://youtu.be/j71Kmxv7smk . License : All Rights Reserved . License Terms : Standard YouTube License
• What the General Ledger Can Tell You About Your Business. Authored by : Mary Girsch-Bock. Located at : https://www.fool.com/the-blueprint/general-ledger/ . License : All Rights Reserved . License Terms : Standard YouTube License

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COST AND MANAGEMENT ACCOUNTING II Assignment 2: CVP ANALYSIS

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Cost Accounting Specialization

Accelerate your Career in Cost Accounting. Use cost accounting tools and improve your business decisions.

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How to allocate the costs incurred to the company's products and the most important methods product costing.

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Many corporate decisions need cost accounting information. When you know the costs of your products, you will make better pricing decisions and you can better choose which products to offer. When you know the costs of your departments, you can better detect inefficiencies and you can better incentivize your employees.

In this Specialization, you will learn the fundamentals of cost accounting. Three courses cover the basics of cost accounting. We will start with an introduction to product costing. How can you figure out the costs of your individual products? Next, we will discuss how to connect cost information with revenue information to calculate profits and profitability. Finally, we focus on how to use the information provided by cost accounting systems to optimize your business decisions.

We have created the courses of this Specialization for interdisciplinary young professionals seeking to develop cost accounting skills. At the same time, the courses can help students in management and business administration to repeat the content of their introductory cost accounting course.

Applied Learning Project

This specialization is structured along with lecture videos and uses readings as well as a series of quizzes and interactive learning elements to help learners gain an understanding of the basics of Cost Accounting. The specialization also applies practical learning elements like building an Excel spreadsheet to determine cost functions and includes numerous illustrative examples from a variety of industries. The coursework teaches learners to plan, control, monitor, and document cost information. From product and service costing, to profit and loss calculation, and leveraging of cost information as the basis for decision-making, the specialization provides a sound foundation to cost accounting.

Basics of Cost Accounting: Product Costing

You will learn how to make your company's cost structure transparent and how to record and calculate costs.

You will learn methods of product costing, i.e., how companies calculate costs of their products and services.

You will learn to decide which product costing system is most suitable for your company’s production program and production type.

You will learn how to determine overhead rates for the allocation of overhead costs to products.

Cost Accounting: Profit and Loss Calculation

You will learn different methods of preparing an income statement.

You will learn to explain why different methods yield different profit numbers.

You will learn to choose the best-suited method for your decision situation.

Cost Accounting: Decision Making

You will learn methods that help to figure out how costs will behave if you adjust produced or sold quantities.

You will learn how cost information can support business decisions best.

You will learn to distinguish costs that are relevant for business decisions from costs that are irrelevant.

Technical University of Munich (TUM) is one of Europe’s top universities. It is committed to excellence in research and teaching, interdisciplinary education and the active promotion of promising young scientists. The university forges strong links with companies and scientific institutions across the world. TUM was one of the first universities in Germany to be named a University of Excellence. TUM does not pass any personal data to the platform providers. If you take part in one of our MOOCs, please refer to the data protection guidelines in the terms and conditions of the provider.

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Frequently asked questions

How long does it take to complete the specialization.

You will take in total 10 weeks and approximately 25 hours to complete the Specialization. The first course "Basis of Cost Accounting" takes up to 12 hours, the second course "Cost Accounting: Profit and Loss Calculation" up to 5 hours and the third course "Cost Accounting: Decision-Making" up to 8 hours.

What background knowledge is necessary?

We offer three consecutive courses that introduce participants to the basics of Cost Accounting. Hence, you do not need any specific background knowledge.

Do I need to take the courses in a specific order?

Yes, as the content of the courses builds on each other, we recommend taking the courses in the following order:

Basis of Cost Accounting: Product Costing

Cost Accounting: Decision-Making

Will I earn university credit for completing the Specialization?

No, you will not earn university credit for completing the Specialization. Yet, the content of the Specialization is build on the lecture Cost Accounting which is offered by the TUM School of Management.

What will I be able to do upon completing the Specialization?

You will acquire a skillset to plan, control, monitor, and document cost information and, thus, lastly improve your organizational decision-making.

Is this course really 100% online? Do I need to attend any classes in person?

This course is completely online, so there’s no need to show up to a classroom in person. You can access your lectures, readings and assignments anytime and anywhere via the web or your mobile device.

What is the refund policy?

If you subscribed, you get a 7-day free trial during which you can cancel at no penalty. After that, we don’t give refunds, but you can cancel your subscription at any time. See our full refund policy Opens in a new tab .

Can I just enroll in a single course?

Yes! To get started, click the course card that interests you and enroll. You can enroll and complete the course to earn a shareable certificate, or you can audit it to view the course materials for free. When you subscribe to a course that is part of a Specialization, you’re automatically subscribed to the full Specialization. Visit your learner dashboard to track your progress.

Is financial aid available?

Yes. In select learning programs, you can apply for financial aid or a scholarship if you can’t afford the enrollment fee. If fin aid or scholarship is available for your learning program selection, you’ll find a link to apply on the description page.

Can I take the course for free?

When you enroll in the course, you get access to all of the courses in the Specialization, and you earn a certificate when you complete the work. If you only want to read and view the course content, you can audit the course for free. If you cannot afford the fee, you can apply for financial aid Opens in a new tab .

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