cost accounting job description

cost accounting job description

The Role of Cost Accounting in Modern Organizations

1. Introduction to Cost Accounting

Management uses cost accounting because it offers specific benefits which contribute to the efficient use of financial and human resources. Cost accounting outputs are used by managers in various departments to make decisions about a range of activities, from hiring and training a workforce through an organization’s purchase, production, and sales processes. The major decisions made are to do with introducing new products or phasing out existing products. The development and use of cost accounting techniques must, therefore, be designed to meet decision-making needs. This chapter looks at the role of cost accounting in more detail. First, the development of cost accounting is considered. Then the definition of the term is set out.

Every organization depends for its success on understanding the costs incurred in providing its products or services. Costs are incurred in the long term in order to meet the strategic objectives of the organization, in the medium term in order to meet its marketing and distribution objectives, and in the short term, day by day, in order to produce and sell its products. These different views of cost are not usually combined into a single consistent statement of the costs incurred in the production and delivery of products or services. However, if organizations are to stay in business and compete in the global economy, they cannot afford to not know what is happening throughout their organization on a general global basis; that is, organizations must provide reliable cost information on a cost management basis. The development and use of cost accounting information, therefore, should focus on decision making at all levels where costs are incurred.

2. Key Concepts and Principles of Cost Accounting

The problems of cost accounting are not with any uniqueness of character as compared with those of financial accounting. Both fields experience similar problems in the need for a theoretical base of principles and the dilemma of reliance on diverse practices based on empirical judgment of the needs in relation to external regulation and control. The wide diversity of practices in cost accounting as typified in texts for operations management and financial accounting, for example, appear to detract from the necessary commonality of accounting concept, technique, and contents which a consideration of the business organization itself is the key focus. The foundations of cost accounting may be found in scientific management theory and indeed the established practices in cost accounting may be regarded as expressions of scientific management.

Absorption costing and marginal costing may be discussed in connection with the techniques of stock valuation, formal presentation of income statements, and decision-making. We shall also describe the scope and role of cost accounting in modern organizations. Cost accounting can be considered as one of the first, and most successful, applications of scientific management to the business field. It is considered as a basis for managerial decision-making. Its interpretation is widened, to encompass the role it now has in the business organizations rather than to restrict it to the traditional cost measurements function. This we believe to be most important in ensuring that the study and teaching of cost accounting is various. The traditional topics are not discarded but are augmented by consideration of the role cost accounting and related information now play in modern management techniques.

3. The Importance of Cost Accounting in Business Operations

So, accounting appropriately applied has its significant effect on what the price should be and on what an organization’s costs will be. The accounting systems that determine these costs and prices are widely used and encompass the broad area of study covered by factory operations. These systems combine to form the cost accounting sub-system of the basic accounting system. Because of the functions and the importance of cost accounting, it thus predicts that a firm spends a lot of money on setting up the cost department and this involves increasing salary cost, bonus benefits, and rear of promotion. Organizations spending too much to retain a fully developed cost accounting system to satisfy the needs for good cost information have not seen a higher compounded annual productivity within their existing firm.

Cost shows that accounting is the only quantitative method that is involved in the decision process of the business. This is because the reports are generated as a product which results from the application of known accepted procedures. This certainty offered by these respected procedures cannot be modified in any way deemed fit and thus promotes the reliability of the information offered. Also, because accounting generates qualified information, this does also affect the organization’s decision when it comes to the selling price. Also, accounting has its involvement in the strategic decision-making processes at issues such as pricing and costing which may directly influence the organization’s future profitability, domestic and international competitiveness, and ability to survive.

4. Cost Accounting Techniques and Tools

Before a particular technique is applied in an organizational setting, a proper modeling is usually made, assuming that close adherence of such model to reality would improve the results achieved. Therefore, a two-tiered approach is used in practice in the application of cost accounting techniques. Initially, the focus is on modeling. Applying the model, a technique is used to create contribution margin (or transfer price) that allows for sound decision making. These are based on mathematical expressions that result from the models set in the first step of the approach. It is important to stress that the main objective still is to establish an effective link among the analyzed effects. The construction of integrated models still is fruitful for an approach that takes global effects into consideration, and the environmental characteristics that must be analyzed are interested for application of existing techniques. Use of models with variable complexity, for example, switching from models with deterministic variables to ones with stochastic variables is not rare.

In the context of engineering economics and management accounting, companies rely on various techniques derived from economics, management accounting, and industrial engineering. Nevertheless, the most common techniques are the ones we discuss next. It is important to mention that the decision related to the application of any technique referred to in the literature in this chapter needs to consider the company characteristics, as well as cost/benefit analysis associated with the implementation. The following content covers the most usual cost accounting techniques present in the literature. The aim is to present their treatment, uses, and the connection these techniques could establish among themselves, creating an internal relational structure that nourishes accounting, cost management, and decision makers in the search for effectiveness and competitive advantage.

5. Career Opportunities and Job Descriptions in Cost Accounting

This person acts as a liaison between cost estimates and general accounting and is also responsible for closing out applications. In general, this person reviews and analyzes cost input files of capital projects.

Manager, Financial and General Accounting

Accountabilities: managing, directing, and assisting in cost accounting department activities and applying or advancing the firm’s knowledge in planning and analyzing the company and its manufacturing divisions, as well as protecting company assets.

Cost Accounting Manager

Title responsibilities: to manage, direct, and assist in the general accounting of the company and its manufacturing divisions.

Accounting Manager

Key responsibilities: maintaining general and subsidiary ledgers, as well as cost accounting methods and procedures; ensuring accurate control of material and labor costs; controlling inventories; directing accounting of application and works orders to other departments; coordinating matters with cost estimating; and safeguarding the company’s assets by maintaining proper internal control.

Assistant Controller, Cost Accounting

Responsibilities include: standard cost analysis and production order close-out; program status reports; financial summaries; and production detail of several key items.

Financial Analyst

Position requirements: 4-5 years cost accounting experience, with 2 years in factories or divisions and some exposure to a career in the factory environment by progressing through an accounting department and obtaining a CMA by specializing in private accounting or operations.

Product Line Controller

Duties: preparing and analyzing performance data and presenting this data to appropriate levels of management. Additional requirements: being classified as a business team member, closing out projects on schedule and participating in reviews, providing closure instructions, and assuring that bills are accurate. Providing statistics and interpreting and applying cost accounting policies and procedures in relation to contracts and assisting departments in preparing budgets and providing actual/variance reporting and analysis.

Project Control Accountant

This person’s responsibilities include but are not limited to the development and maintenance of the cost system, customer/vendor pricing, quote preparation, and financial analysis of the programs. Other duties might include analyzing and interpreting proposals and contract requirements. This person also supports and settles indirect rate disputes with the government.

Staff Cost Accountant, Cost/Incentive Accounting Analyst

Job Descriptions in Cost Accounting

– Staff Cost Accountant, Cost/Incentive Accounting Analyst – Project Control Accountant – Product Line Controller – Financial Analyst – Budget Analyst – Manufacturing Analyst – Plant Accountant – Manager, Financial and General Accounting – Senior Analyst, Cost Accounting – Accounting Manager – Cost Accounting Manager – Plant Controller.

Some examples of job titles for cost accountants are:

Career Opportunities

As mentioned in Chapter 1, persons interested in a cost accounting career will be performing many challenging and rewarding activities. The cost accounting professional can look forward to preparing and interpreting data for planning and control purposes, as well as working in all areas of management. A summary of career opportunities is presented next.