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Understanding Cost Accounting and Cost Accounting Types

Understanding cost accounting requires answering the following questions:
  • Are there different types of Cost Accounting?
  • What type of companies use it?




What is Cost Accounting?

Cost Accounting is a career and method of accounting in which the accountant maintains the costs of products or services for a company.

Using various cost information, he reports costs, profits, and waste costs. He also creates many unique reports as required. Cost accounting is primarily for use by the management of the company. Unlike financial accounting, this information is not normally shared with the public. Cost accounting information is secret information to the company, since it reveals the costs and income for individual products or services. If the competition knew this information, they would have an unfair advantage when competing for new contracts.


The cost accountant establishes direct labor and material standards, along with burden rates. It is very important to management that they know what the costs are to make their product. If the costs are not accurate, then management may quote new work at an incorrect price, or decisions about the current work may be wrong.

Cost accounting is also takes a large part in the creation of forecasts, budgets and business plans for the company. Costs start with the current costs for products and services and then these costs are forecasted out for the future years with known cost changes and assumed inflation costs.


The accountant also maintains inventory valuations and may become part of several teams to reduce costs and price new work.


Are there different types of cost accounting?

Cost accounting adapts itself to the industry, manufacturing processes and product. An airplane manufacturer will use job order costing, while a manufacturer with a repetitive assembly line will use manufacturing cost accounting standards. Below are some of the different types:
What types of companies use it?

Cost accounting should be used by every business that has a product or service. It is vitally important for management to know and understand the costs of their business. Understanding cost accounting is necessary for these types of companies:
  • Manufacturing of all kinds
  • Service type industries
  • Hospitals and health care providers



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