Business is all about the flow of revenue. The end motive of all businesses is to attain financial stability and furthermore to make exceeding progress in terms of the cash influx. But while businesses are forever in their strive to become a financial success they also have to invest in their plans and ideas.
Under the banner of ‘Spend money to make money,’ all businesses are undergoing a constant to and fro of money. As a result, it becomes very important to keep the track of the money incurred and the money spent. These records of transactions are maintained by Cost Accountants.
However, a specific crucial part of management accounting is a specialized area of expertise concerned with analyzing the costs of products and services manufactured or sold by a company.
Roles and Responsibilities of a Cost Accountant
For example, you take the bus to work every morning. For a specific distance, you pay Rs. X. As the distance increases, the fare increases. How is that fare determined?
The revenue from the ticket prices needs to pay: salaries of the driver, conductor, fuel, tolls, other day to day expenses – in the short term. In slightly longer time frame, it needs to pay for bus maintenance, permits fee, other fees.
In the really long term, it eventually needs to pay for the total fixed cost of the bus, and at least the basic interest rate on the money invested.
I will not invest in running a bus service if the money from that service does not exceed all of my short term and long term costs. Cost accountants are responsible for finding those costs.
In order for any entity or business transaction to be profitable, it’s vital to understand the precise costs – which are not always visible – of the different elements and to make sure this aggregate cost is level than the estimated future payoffs.
Cost Accountancy is thus the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability.
It includes the presentation of information derived therefrom for purposes of managerial decision making.
Besides keeping track of the financial transactions in an out of organisations cost accountancy also deals with the phenomenon of prediction. This means that based on the database from past experience and the trending demands of the market, cost accountants can assess the budget for projects that are being conceived.
Their primary task is of collecting, analyzing, summarizing and evaluating various alternative courses of action, as the goal of cost accountancy is to advise the management on the most appropriate course of action based on the cost efficiency and capability.
Eligibility Criteria to become a Cost Accountant
Working as a cost accountant requires some formal education. Cost accountants create budgets and manage costs for a company. They typically need a bachelor’s degree, but an associate’s degree is acceptable in certain situations.
The job title ‘cost accountant’ often designates an entry-level management accountant position. Cost accounting involves establishing a budget to manage costs and maximize profitability.
The majority of such accountants hold baccalaureate degrees in accounting or finance, and many choose to voluntarily become Certified Management Accountants (CMA), a globally recognized designation conferred by the IMA, or even Chartered Accountants.
Cost accountants may advance to higher-level positions within the management accounting world, such as accounting manager, budget director, chief cost accountant or internal auditing manager.
Others eventually become chief financial officers, company controllers, treasurers or even presidents of corporations.
A day in the life of a Cost Accountant
Hi. I am a cost accountant and I work for a textile company. My work is to advise the managerial staff about the profitable courses of action that the company could take generate better income.
9:00 AM: Just reached office. The winter is here! it’s freezing outside.
9:30 AM: I receive a cost comparison from a junior for a new machine installation our unit in Meerut is planning. We have received tenders from three vendors. All of these vendors have given an upfront fixed purchasing and installation cost, a variable maintenance cost (a percentage of total running hours), different power and fuel costs, total estimated life in years, and different production capacities.
My junior has taken a common base and prepared a capital budgeting sheet outlaying which of these three vendors is the most cost-efficient for us in the long run. I check his assumptions and calculations and forward to my boss for final approval.
11:40 PM: Running such heavy numbers is not an easy task, and I am famished after the exercise. I take a quick snack break and check my email.
12:50 PM: The manufacturing unit has sent me the cost charts of Q1. I sit down and prepare a cost analysis: the actual cost per unit of production against our estimated standard costs. We break down our total cost of production in direct (Raw materials, labour, etc) and indirect (power, admin expenses, marketing expenses) costs.
For example: If I manufacturing 5,00,000 pens last month, and spent a total of Rs. 15,00,000 on all expenses included, that meant one pen should take me Rs. 3 to manufacture. However, because of unforeseen circumstances, like a labour strike, machine breakdown, or just less productivity, I produced only 4,00,000 pens this month, against Rs. 14,50,000.
So the cost of one pen has increased for me. The first one is the standard cost, the second one actually. I analyze the variances and flag the reasons for the management. Based on this, the management will take corrective measures.
2:30 PM: It’s not too bad a time for lunch.
2:15 PM: I continue working on the cost sheet, and also prepare this quarter’s costs against last quarter’s. Our marketing overheads have increased by 25%. This is unusual.
3:30 PM: I checked with the boss, and it turns out the marketing department spent a few extra lakhs in marketing. I’d cleared it, don’t know how I forgot! It’s my job to analyze variances and give appropriate reasons to the management.
5:30 PM: I finish my report and cc the finance manager.
My work might seem a little slow, predictable, and boring to a few people, but my numbers are comforting, and there is always a cause-effect relationship for problems! Do you want to be like me? We hope this article has added something valuable to your search. Have your say in the comment box below. Enjoy Reading!