Cost accounting is a process used by organizations to measure the costs of producing their goods or services. This involves tracking all costs incurred during production, such as materials, labor, and overhead, and analyzing how these costs contribute to the overall financial picture of the business. By employing cost accounting techniques, businesses can determine profitability of specific products or services and identify areas for cost savings. For example, a manufacturing company might use cost accounting to figure out which product line is the most cost-effective to produce based on variable and fixed expenses.

Organizations also use cost accounting to form pricing strategies. By understanding all incurred costs, from direct costs like raw materials to indirect costs like utilities, a company can set competitive prices that maximize profit margins. Cost accounting information often feeds into broader financial statements, helping to align operational decisions with strategic goals. Examples of cost accounting methods include standard costing, activity-based costing, and job order costing.