What is Cost Accounting?

If you are interested in pursuing a career in accounting, you should know about all of the methods in the discipline, including cost accounting. This method of accounting is a valuable tool used by businesses to either reduce costs or eliminate them entirely. As you can imagine, businesses are constantly looking for ways to keep the costs of operations down and to maximize the profits that they can earn when selling each product or service. Because of this, anyone who wants to work as an accountant should be familiar with the terms and techniques that are used in this area of accounting.

What Are the Basic Principles in This Area of Accounting?

This discipline tends to be very complex compared to other areas of accounting, and because of this, it is very important to take even an entry-level college course in the subject area to familiarize yourself with the terms that you will run into regularly. The entire purpose of cost accounting is to analyze direct, indirect, variable and fixed costs and then come up with strategies to lower or eliminate costs in the future. Cost accountants may also become part of the marketing process by getting involved in the pricing of products so that the company can turn a profit. Cost accountants will need to know financial, managerial and cost terms to work in this sub-field.

Common Cost Analysis Concepts

There are many basic concepts in the cost area of accounting that you will need to know before you can begin to perform any type of cost analysis. You will need to know the contribution margin, the break even formula, and the relevant range of equipment to calculate costs of equipment, profits and the level of sales where your profit breaks even. Once you have these basic concepts down, you must learn about cost analysis to do more in-depth and complex tasks for an organization.

In this area of accounting, you will use many different tools to analyze cost and strategize. Job costing, process costing, activity-based costing, process costing, inventoriable costs, and variance between planned and budgeted costs are all tools that will be used by cost accountants. Each tool is designed to cater to a specific type of business or a core area of business. These tools are why so many new accounting students find the study of this area of accounting to be difficult. But, once you separate this area from the others, it is much easier to comprehend.

While cost accounting is a difficult subject to learn, it is a necessary subject for accountants to know and master. Not only do accountants who plan to become CPAs need to learn this subject, it is also important for business owners who are coming up with their own pricing strategies to know the basics and some of the tools of the discipline. If you are registering to take several different courses at a reputable accounting school, be sure to include this course in your class schedule. By studying cost accounting in college, you will learn all of the important concepts and principles to succeed.

Related Resource: State Listing of Graduate Schools Accredited in Accounting