Prior to the industrial revolution, businesses were small and characterized by simple market exchanges between individuals and organizations. In those times there was a need of accurate book keeping though not that much of cost accounting. However, by the seventeenth century in France, the Royal Wallpaper Manufactory had a Cost Accounting System. Some iron masters and potters in eighteenth century in England too began to produce Cost Accounting information before the Industrial Revolution.
Subsequently, with the advent of the industrial revolution, large sized process industries performing single activities (e.g. textiles , railways etc)came into being. During this period, there was a lack of market for intermediary products because of which cost information gained importance as a tool for measuring efficiency of different processes. The period, 1880 AD -1925 AD saw the development of complex product designs and the emergence of multi activity diversified corporations like Du Pont, General Motors etc. It was during this period that scientific management was developed which led accountants to convert physical standards into cost standard, the latter being used for variance analysis and control.
During World War I and II the social importance of cost accounting grew with the growth of teach country’s defend expenditure. In the absence of competitive markets for most of the required to fight war, the Governments in several countries placed cost-plus contracts under which the price to be paid was the cost of production plus an agreed rate of profit. The reliance on cost information by the parties to defence contracts continued after World War II as well. Even today, most of the government contracts are decided on a cost plus basis.