Managers rely on cost accounting to provide an idea of the actual cost of processes, departments, operations or product which is the foundation of their budget, allowing them to analyze fluctuation and the way funds are used socially for profit. Cost accounting is used in management accounting, where managers justify the ability to cut costs for a company in order to increase that company's profit. As a tool for internal use, versus a tool for external users like financial accounting, cost accounting does not need to follow the GAAP standards (Generally Accepted Accounting Principles) because its use is more pragmatic.
Any distortions in cost that were caused by calculating what the overhead of a product is versus what a unit cost is for companies that specialize in only one specific product are very minor in industries that mass produce that product with a low fixed cost. Understanding why costs vary compared to what was actually planned helps a manager to save a company money by taking actions that are appropriate to correct that variation in the future. Variance analysis is a very important part of cost accounting because it breaks down each variances into many different components of standard cost and actual cost. Some of these components are material cost variation, volume variation and labor cost variation.
Cost accounting is a very important part of the management accounting process. In order for managers to determine the best methods to increase a company's profitability, as well as saving a company money in the future, cost accounting is a necessary system in the management of a company's budget, providing important data to analyze fluctuation in company production costs.