Accountants are a critical part of business success for companies of all sizes and in all industries. Because they protect financial assets, assess operations and ensure that finances are managed correctly, they are “at the front line of safeguarding the integrity of financial reporting,” according to the International Federation of Accountants. Accountants also contribute to a company’s stability so that core business processes can be carried out efficiently in a way that meets both internal policies and external requirements.
In many cases, one of the most important responsibilities is the management of cost accounting systems. Also known as product costing systems, they are “framework[s] used by firms to estimate the cost of their products for profitability analysis, inventory valuation and cost control,” Accounting Explained says. Having a clear understanding of two key types of cost accounting systems can give prospective accountants an advantage as they begin their career.
Job Order Costing
Job order costing is a method of expenditure monitoring in businesses that create products to fulfill customer orders. In this system, “Employees complete job order cost sheets for each order and usually separate [expenditures] into three main categories: direct material, direct labor and manufacturing overhead,” according to Chron Small Business.
Manufacturing companies in particular benefit from using this costing system because it enables the control of materials, equipment and hours. Each order is usually treated as a separate job, but in some cases, manufacturers “group smaller value projects together under a single job heading,” Chron Small Business continues.
However, it isn’t only manufacturers that make use of job order costing, Accounting For Management says. Other service-based enterprises that employ this system include:
- White collar business: This category includes accounting firms, law firms and private companies. Job order costing allows them to effectively oversee individual client accounts.
- Health care: Hospitals, doctor’s offices and medical billing companies use job order costing to treat each patient as an individual job.
- Retail: Enterprises like clothing producers and outlet stores use job order costing to “track sales of clothing by size, individual articles and broader styles … to show how costs vary from product to product,” Chron Small Business explains.
- Entertainment: Film studios, for example, use job order cost sheets to manage actor and director salaries, crew wages and other labor costs.
Your Accounting Career Begins with Education
Employers are searching for talented accountants. Discover how you can acquire the relevant skills you need to start your accounting career.Request Information
Unlike job order costing, businesses use the process costing system when they mass produce products that are very similar. This is because the cost of each product is likely the same. “Under this concept, costs are accumulated over a fixed period of time, summarized, and then allocated to all of the units produced during that period of time on a consistent basis,” Accounting Tools says. Industries such as food production and chemical processing make use of this cost accounting system.
There are three different types of process costing:
- Weighted average costs: This is the simplest method of process costing. It puts all costs together and assigns them to produced units. The weighted average method is used when “there is no standard costing system, or where the fluctuations in costs from period to period are [negligible],” Accounting Tools explains.
- Standard costs: The standard method is in many ways similar to the weighted average method. The central difference is that standard costs are assigned to units rather than actual costs. When manufacturers make a variety of products with different associated costs, the standard cost system is useful.
- First-in, first-out costs (FIFO): FIFO costing is the most complex method of process costing. It creates different tiers of costs: one for units that began in the last production period and one for units that began in the current period. It is primarily used when costs change significantly from one period to the next.
Beginning Your Accounting Career
Because accountants play such an important role within organizations of all types, there is high demand for trained accounting professionals. The Bureau of Labor Statistics reports that accountants and auditors can expect to see faster than average job growth through 2024. The average salary for these careers is $67,190.
A successful career in accounting starts with education that combines core business skills with specialized accounting coursework. West Virginia State University offers a fully online B.S. in Business Administration: Accounting degree that focuses on fundamental theories and concepts that prepare students for a variety of accounting roles. Students learn to think critically and solve problems in this program, which is accredited by the Accreditation Council for Business Schools & Programs.