What is cost accounting? All about the in-demand career

At the end of the day, what do all companies want? To make money, of course. But sales alone won’t make organizations profitable. Good spending and expense management determines profitability, scale, and long-term business growth. And that is why cost accounting is valuable in any industry. 

But what is cost accounting? How does it work and why is it important? Learn all this, plus cost accounting career paths and how to grow your career as a cost accountant. 

What is cost accounting? 

Cost accounting is a specialization within managerial accounting, focusing on tracking, analyzing, and reporting an organization’s costs. 

Companies rely on cost accounting to inform and manage their spending strategies, with the goal of minimizing costs to maximize profits. It’s important to know that cost accounting is an internal process—conducted only by and for use within the organization. 

Why is cost accounting important? 

Bottom line: companies rely on cost accounting to help them increase profit margins. By analyzing how an organization is spending its money, cost accountants can pinpoint areas of waste or over-expenditure and help to streamline those areas. And when companies spend less, their profit margins increase. 

For example, if a book-printing company budgets the cost of printing a single book at $7.50, but actually spends $8, a cost accountant identifies where in the process the company is spending too much and helps define a strategy to reduce these costs of production. With this expertise, the company begins to produce at or under budget, increasing profits with each sale. 

Cost accounting uses 

Organizations rely on cost accounting services to inform decisions in multiple areas within the company, including:¹ 

• Internal costs: by providing insights into a company’s costs incurred, cost accountants help the organization optimize its spending strategies 
• Expansion plans: cost accountants help companies understand how they spend money and the costs required to provide their products or services to help scale their business 
• Financial statements: while the financial accounting team prepares financial statements, they often rely on the pricing data collected through cost accounting
   

Types and techniques of cost accounting 

There are multiple cost accounting methods, each with a specific problem-solving approach and strategy of implementation:² 

• Standard cost accounting: comparing standard costs and actual costs with budgeted costs per product, process, or service 
• Activity-based costing (ABC): identifying and assigning costs based on the need of the activity or service, rather than evenly across processes 
• Job order costing: assigning costs based on specific jobs, especially within organizations that offer custom jobs or services 
• Process costing: in industries of continuous production, accumulating costs over a set period of time and dividing by the units produced to determine cost per unit 
• Marginal costing (variable costing): evaluating product or service costs based only on costs that change with output (variable costs), without including fixed costs in the calculation  
• Lean accounting: streamlining accounting processes and focusing on concise, actionable insights to reduce waste and improve efficiency (supporting lean manufacturing goals) 
• Absorption costing: considering all costs (fixed and variable) associated with a product or service 
• Throughput accounting: emphasizing the company’s sales minus the cost of materials (throughput contribution) to define profits and strategy 
   

Cost accounting tasks and skills 

Cost accountants, like all accountants, need refined skills and knowledge to perform the daily tasks they’ll face on the job. For cost accounting, tasks include: 

• Analyze costs (materials, inventory, labor) 
• Audit processes to improve efficiency and spending 
• Reform budgets 
• Develop cost reports 
• Inform decision-making and strategy-planning 

Skills used in cost accounting include: 

• critical thinking  
• performance reporting 
• communication 
• tech skills 
• cost analysis expertise and use of strategies, including³ 
  • Break-even point 
  • Contribution margin 
  • Target costing 
  • Gross margin  
  • Pre-tax dollars needed for purchase 
  • Price variance 
  • Efficiency variance 
  • Variable overhead variance 
  • Ending inventory 
     

Cost accounting vs financial accounting 

While cost and financial accounting share some responsibilities and skillsets, the two have different scopes and purposes. 

Cost accounting jobs 

Cost accountants can work in nearly any industry, as all companies incur costs and look to reduce them. These include government, banking, construction, manufacturing, transit, and more. 

Job titles for those specializing in cost accounting include:⁴ 

• Cost accountant 
• Project cost accountant 
• Senior cost accountant 
• Internal accounting director 
• CFO 
   

Cost accountant salary 

US-based cost accountants make an average annual salary of $77,914.⁵ 

How to become a cost accountant 

Becoming a cost accountant begins with a degree in accounting or finance. Once you enter the workplace, you can then use profession credentials and continuing professional education (CPE) to specialize your career. 

To start in cost accounting, your best first step is becoming a Certified Management Accountant (CMA). Becoming a CMA requires that you pass the CMA Exam, demonstrating that you have the knowledge and skills required to work in management accounting. CMAs are regarded as leaders within the field; with this credential, you have a good chance of landing an internal accounting position. 

CMAs must maintain their credential by completing an annual 30 CPE credits. This requirements gives you the opportunity to specialize in your field—honing your cost accounting skills through specific, topic-based CPE courses.

Gaining more knowledge through CPE and more experience in the field, you can push your career forward into cost accounting roles. 

Get started with Becker 

Start honing your cost accounting focus by becoming a CMA—with support from the most trusted exam review partner in the accounting field. Becker’s CMA Exam Review provides quality instruction and proven study resources with the most updated content to help you pass the CMA Exam, guaranteed. 

Get started with this free CMA Exam eBook, designed to provide you with details around the CMA certification, exam, and all the doors it will open for your career.

Stand out in finance and accounting as a Certified Management Accountant! 

In this FREE ebook, you'll learn more about the CMA certification, how to earn it, what kind of opportunities can open up, and whether it's right for you! 

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