Account based Profitability analysis is a form of Profitability analysis (PA) that uses accounts as its base and has an account based approach. It uses costs and revenue elements.
Costing based Profitability Analysis is a form of profitability analysis that groups costs and revenues according to value fields and costing based valuation approaches. The cost and revenues are shown in value fields.
Advantages and Disadvantages
The advantage of Account based PA is that it is permanently reconciled with Financial accounting.
The disadvantages are that it is not powerful as the costing based PA, since it uses accounts to get values. No Contribution margin planning can be done since it cannot access the standard cost estimate. Further no variance analysis is readily available.
The advantages of the Costing based PA are manifold. They are as follows:
- Greater Reporting capabilities since lot of characteristics are available for analysis.
- This form of PA accesses the Standard cost estimate of the manufactured product and gives a split according to the cost component split (from the product costing module) when the bills are posted.
- Contribution margin can be planned in this module since the system automatically accesses the standard cost estimate of the product based on the valuation approaches.
- Variance analysis is ready available here since the variance categories can be individually mapped to the value fields.
Disadvantages: Since it uses a costing based approach, it does not sometime reconcile with financial accounting.