As with other professions, accountants specialize in particular fields. Cost accounting is a field where the opportunities for advancement are especially ripe. Learn about the steps, education needed and career options to become a cost accountant.
What is Cost Accounting?
If you enjoy collecting and studying data, you might want to consider becoming a cost accountant. Whether you're a student or already an accounting professional, businesses, government agencies, and other organizations need employees who can analyze and improve cost control and efficiency and easily fit into a cost management accounting position. Cost accountants are problem solvers by nature and, 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 a general finance accounting manager, who often 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 they hold a cost management accounting title, a cost accountant may hold a senior position in which they also supervise a certain amount of lower level accountant positions who perform the company’s basic accounting jobs. From this basic data, the cost accountant is responsible for planning budgets in terms of cost efficiency and risk management, prepares forecasts and financial analysis, and measures performance based on success and business policy, and then provide all information to management and others in advanced positions in the form of financial reports and financial statements for decision-making purposes.
Areas of Specialty
You'll find that the role of a 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 and they may do some business valuation depending on this financial information. The cost accountant may recommend increasing production of top-selling items and cutting back or eliminating production of low-selling products based on their key analytical knowledge and years of practical experience and training. The cost accountant will also inform management how many sales they must make before costs are recovered and the company turns a higher profit on the item either in the national or international market. They may also do this while the company works to develop a new product or service.
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. In this position, you'll have info on where the numbers are and where a company needs them to eventually be.
While cost accountants are employed in many industries and have excellent career prospects, especially when they step into a managerial accounting position, they are especially prevalent in construction and manufacturing. These are industries dealing with large amounts of inventory and considerable labor and production costs and can easily utilize your accounting skills to enhance profitability assurance.
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 in an independent practice are generally hired to consult with 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, though they are unlikely to be in a warehouse counting inventory themselves.
Cost Accounting Standards?
Average Cost Accountant Salary: $57,000
Cost accountants should familiarize themselves with the four primary methods of cost accounting.
These consist of:
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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. A cost accountant in a management position may have a staff accountant use an accounting information program to track these costs, whereas those who work as consultants will likely have the information technology knowhow and analytical skills to do this themselves.
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 and may be used by high level management professionals, such as a chief cost accountant (CCA).
This method keeps the focus on 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, as with other accounting positions, 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, performing data entry and conducting data analysis. Along with technical skills, cost accountants require good communication skills 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, and one of the most important qualities of all is strong analytical skills. Those with all these skills will have no lack of career opportunities and career development, with or without licensure and extensive work experience.
What is the Required Education?
Cost accountants must receive at least a bachelor's degree in accounting or a closely related field. 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 an MBA (master of business administration) from a business school. While a cost accountant does not need a certified public accountant (CPA) designation, many employers prefer to hire someone who is a member of the AICPA, especially when working in a large organization.
What are the Certifications?
A cost accountant should hold a license in the state in which they find employment. While cost accountants do not have to become a certified management accountant (CMA), it is a wise move for their chosen career path. 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 complete in four hours. A passing score of at least 60% is required.
To become a CMA, an individual must have a bachelor’s degree, and there are other specific subject education requirements you must complete as a student. The candidate must also have at least two years’ of work experience 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 professional experience and education, cost accountants may advance to becoming budget directors, internal auditing managers, accounting managers, and eventually controllers, treasurers, or chief financial officers (CFOs). It's not unusual for someone who began in cost accounting to become a corporate president, though you may need to earn a graduate degree in an accounting program to be considered for advanced accounting positions.
Salary and Job Outlook
According to the Bureau of Labor Statistics, accountants average salary for 2020 was $73,560 per year, or $35.37 per hour. CMAs tend to earn more than the average salary for a cost accountant. The job outlook for the next decade is promising, with demand expected to continue to grow by 7%, 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 96,000 by 2030. Because companies will continually look to increase profitability of products, the need for cost accountants and other positions in this area will remain strong.