As with other professions, accountants specialize in particular fields. Cost accounting is a field where the opportunities for advancement are especially ripe.
What is Cost Accounting?
If you enjoy collecting and studying data, consider becoming a cost accountant. Businesses and government agencies need employees who can analyze and improve cost control and efficiency. Cost accountants are problem solvers by nature, because no matter the industry, that’s a basic part of their job. So is finding ways to save a company or agency money. Cost accountants are also known as managerial accountants, management accountants or industrial accountants.
Unlike general financial accounting, which focuses on preparing information for outside investors on a company’s condition, cost accounting concentrates on the internal processes within an entity with the aim of aiding decision making. If the title is management accountant, a cost accountant may also supervise lower level accountants who perform the company’s basic accounting jobs. From this basic data, the cost accountant constructs budgets, prepares forecasts and measures performance, presenting all information to management for decision-making purposes.
Areas of Specialty
The role of the cost accountant is often tailored to the needs of a specific industry or agency. Cost accountants may perform a variety of functions, but tend to work in three general areas. The first is maintaining cost information on a company’s products. This involves constant review of standards, as well as any product or manufacturing changes resulting in cost changes. That means analyzing supply and raw material costs, and suggesting vendor changes after conducting a cost-benefit analysis. Every expense within the supply chain is examined. The cost accountant may recommend increasing production of top-selling items and cutting back or eliminating production of low-selling products. The cost accountant will also inform management how many product units must sell before costs are recovered and the company turns a profit on the item.
Cost accountants also review overhead, labor costs and rates of depreciation, recommending changes to improve the bottom line and reduce waste. They may evaluate potential business prospects, including expansion or the purchase of another company. Every business seeks to drive profitability, and the cost accountant is an essential part of the process. You know where the numbers are and where a company needs them to eventually be.
While cost accountants are employed in many industries, they are especially prevalent in construction and manufacturing. These are industries dealing with large amounts of inventory and considerable labor and production costs.
Where You Can Work
The majority of cost accountants work either in government agencies or are employed by large companies. Some cost accountants may establish private consulting ventures or work for a public accounting firm. Those working independently are generally hired by smaller firms that cannot afford to employ a full-time cost accountant. These private cost accountants may help a company establish a price for its products while establishing the inventory’s value as it is subject to market forces.
When it comes to where a cost accountant literally works, this is a white-collar job primarily conducted in an office setting. However, cost accountants may have to travel to a company or supplier’s production facilities to keep tabs on inventory and production operations. If there are inventory discrepancies, it is the cost accountant’s role to investigate the situation and reconcile them.
Cost Accounting Standards
Cost accountants should familiarize themselves with the four primary methods of cost accounting. These consist of:
Standard costing system
the most common and simplest method of cost accounting, this system gives an average cost to every direct cost associated with production of a product, such as labor, overhead and materials. The system then becomes standardized.
Cost volume profit analysis
this method determines all fixed and variable costs for the entire process of producing all products. It is a straightforward way to figure the company’s breakeven point, or at what point the current production level starts turning a profit.
this method determines the fixed and variable costs in a product line as proportionate to its direct costs. Overhead from each department is analyzed, including employee time management. It’s a good tool for showing management how money and time is spent.
this method focuses organization efficiency expansion, such as production bottleneck reduction, with the goal of maximizing throughput, or the amount of material passing through the system.
Software Familiarity, Technical and Other Skills
Cost accountants must possess a deep familiarity with cost accounting software programs and good technical skills. It is also crucial to stay on top of software package changes and trends in the industry, so they are always operating as effectively as possible. Because cost accounting is data-driven, cost accountants will spend a great deal of time on their computers, inputting data and conducting data analysis. Along with technical skills, cost accountants require good communication and writing ability, as they must break down complicated information in a way that is easily grasped by management. Because so many facets of a cost accountant’s job are deadline-oriented, the job requires strong time management skills, attention to detail and discipline.
Cost accountants must receive at least a bachelor’s degree in accounting. While not a requirement for the job, many cost accountants become certified management accountants. Some employers may seek cost accountants with a master’s degree in either accounting or business administration. While a cost accountant does not need a certified public accountant (CPA) designation, many employers prefer to hire someone who is a CPA, especially when working in a large organization.
A cost accountant should hold a license in the state in which they are employed. While cost accountants do not have to become certified management accountant, it is a wise career move. This exam falls under the auspices of the Institute for Management Accountants and focuses on management. While rigorous, the exam is only about half as long as the Uniform CPA exam, and is conducted in four hours. A passing score of at least 60 percent is required.
To become a certified management accountant, an individual must have a bachelor’s degree, and there are specific subject requirements. The candidate must also have at least two years’ experience working in accounting prior to applying for certification. To obtain certification, candidates must join and remain a member in good standing with the Institute of Certified Cost Accountants (ICCA). Such memberships require a minimum of a bachelor’s degree.
Once a cost accountant receives certification, he or she must maintain certification by taking continuing education courses each year. Total requirements are a minimum of 60 hours of continuing education every three years, or approximately 20 hours per year. The certified cost accountant must remain a member in good standing of the ICCA.
Cost accountants are often entry-level positions for accounting management. With experience and education, cost accountants may advance to becoming budget directors, internal auditing managers, accounting managers and eventually controllers, treasurers or chief financial officers. It is not unusual for someone who began in cost accounting to become a corporate president.
Salary and Job Outlook
According to the Bureau of Labor Statistics, accountants median pay for 2017 was $69,350 per year, or $33.34 per hour. Certified management accountants will earn more than the average cost accountant. The job outlook for the next decade is promising, with demand expected to grow by 10 percent, faster than the average occupation. Currently, nearly 1.4 million people are employed as accountants, and the number of jobs is expected to grow by 139,900 by 2026. Because companies will continually look to increase profitability of products, the need for cost accountants will remain strong.