Cost accounting is a facet of management accounting that determines the actual cost associated with manufacturing a product or providing a service by looking at all expenses within the supply chain. It is done for the purpose of budget preparation and profitability analysis. The information derived from this process is useful to managers in determining which products, departments or services are most profitable and which ones need improvement.
Cost accounting involves determining fixed and variable costs. Fixed costs are expenses that recur each month regardless of the level of production. Examples include rent, depreciation, interest on loans and lease expenses. Variable costs are expenses that fluctuate with changes in production level, such as supplies, labor, and maintenance expenses. These costs are related to production in that the more units of a product produced, the more expense there is associated with the materials and labor that went into making the product.
Cost accountants are responsible for the collection, adjustment, auditing and scrutinizing of all financial information. The purpose of cost accounting is for budget preparation and profitability analysis. They collate the numbers which includes data about planning systems, wages, bonuses and operating policies into financial reports. The purpose of this is to help the management take decisions on the basis of this information.
The CPCA® Certification requires strong technical skills as cost accountants spend a lot of time analyzing data so they need to have some experience with the latest software. They also need to have strong analytical skills and interest in finance.
