cost accounting course

cost accounting course

The Importance and Application of Cost Accounting in Business Operations

1. Introduction to Cost Accounting

Cost accounting information is also required by the government and other external parties. The information takes the shape of cost reports, budget of cost estimates, to help the management to discharge its public responsibilities, and business to comply with fiscal requirements, and costs for the purposes of price determination and other regulatory measures. The knowledge of cost accounting is also a must for every employee in a business unit. It is the basic for other specialized branches of accounting such as managerial accounting, marginal costing, standard costing, etc., concept of cost of capital, overhead, inventory valuation, capital budgeting, etc. Thus, cost accounting, by providing necessary costing information, raises the standard of efficiency in all the stages of business from a lower level to a higher level.

Cost accounting is employed by business entities for recording, classifying, and summarizing costs in order to calculate the cost of products or services, and to control costs with a view to maximizing profits. In other words, the recordkeeping of cost data is prerequisite in order to measure product cost and to control production cost. In addition, cost accounting provides other significant and necessary information such as cost volume, margin of safety, break-even point, and so on for better management. If a proper costing system is in operation, it is essential for every concern to charge the cost of production to the product manufactured or services rendered. Proper ascertainment of cost is very important, particularly in the case of competitive business, where the costing of the product is very significant from the viewpoint of fixing selling prices.

2. Key Concepts and Terminologies in Cost Accounting

Every cost concept in cost accounting is interconnected. These concepts are built on various cost theories in economics and are derived from topics such as decision-making under uncertainty, information asymmetry, domain theory, game theory, etc. In this section, we will go through one by one, explain important cost concepts, develop a theoretical framework first, and link them together later. Throughout this paper, a production unit itself refers to a separate production department at every point in the discussions, unless stated otherwise. Moreover, we take the basics for granted (such as the distinction between direct and indirect costs), and any relevant thoughts or concepts can be re-included as needed in derivations. Note that only the cost terminologies that are related to finance and managerial decisions emerge as the subject matter of this paper.

Cost accounting provides all the necessary data that an organization’s management needs to plan, control, and improve its operations. However, cost accounting is more of an art than a science. In cost accounting, we need some assumptions, concepts, and terminologies to understand the subject on the go. A thorough understanding of these assumptions and concepts aids in better application decisions. In order to understand cost accounting in more depth, it is essential to understand the following concepts and terms used in cost accounting. Here, we will enlighten some of them and link them with the context through the related sections.

3. Methods and Techniques of Cost Accounting

Accounting, to a large extent, serves as a guide to evaluate the economics of decisions. Costs are the money reflection of resources applied in the pursuit of purposes. The amount of the cost is often measured by the market prices of resources exchange. If the market price is not available, then historical cost, i.e., the actual amount spent in the past, serves as a measure of cost. COST = RESOURCES USED There are various methods and techniques available under cost accounting. Many of them are easy to use and cost relatively little to operate. However, none of them can be said to be the best method for all purposes. Every method has some advantages and disadvantages inherent in them. Depending on the specific purpose, it is a matter of managerial choice to decide the best techniques. Since the techniques are used for different purposes hatched in cost accounting, the linkages of each method to a specific purpose are explained in detail below. After understanding the overall framework of key components, objectives, and scope of cost accounting, the methods and techniques of cost accounting happen to be the vital aspect of designing a cost accounting system.

It is clear from the above explanation that cost accounting is a people-centered activity aimed at reducing wastages in time, materials, scrap, equipment, space, and a host of overhead charges like depreciation, finance costs, administration overheads, research and development expenses, and selling and distribution costs. For this purpose, the cost of a job or contract, or the product or service should be found out. This will enable behavioral control and modification to the persons involved in the process. The task should be clearly assigned, and responsibility fixed. Compiled information will help in the analysis and interpretation of performance. It should be so designed as to evolve an effective and meaningful performance measurement system.

4. Cost Accounting in Decision Making

As a way to close the gap between theory and practice, cost accounting, in analyzing and modeling the behavior of costs that incur administrative and operational action on the business positioning, is assumed to be an important tool in creating such knowledge and making this concept clear to chief executives, examining the economic and financial consequences over the decision-making process. Since it is expected that, independently of the technical formation or experience of the professional, cost accounting should orient, inform, and provide chief executives with correct support during the decision process. Lots of papers have been published approaching all these problems with different theoretical and practical methodologies and ways. Costs drive not only in how businesses are structured and operated for the benefit of owners but are also seen in social organizations with constraints related to the search for profit, market targets, or independence would also be limited to resources and activities.

Costs and the analysis of the way these costs behave according to business volume are very important pieces of information for the preparation of budgets and long-range plans and for use in the decision-making process. Relevant costs take part in the economic and financial activities of any entity and, therefore, they must be parameterized and adequately modeled to support decision making. However, this practice is seldom observed in the real world. Practical problems of understanding and the absence of tools limiting the options available to advisories have motivated economists, academicians, and professionals to investigate and develop studies to improve this scenario.

5. Recent Trends and Technologies in Cost Accounting

The shortcomings of the traditional model have been studied since the late 1980s. Initially, the IDS / CIM-STIMSI project; production and cost-oriented controllers; HMSO History Report; initiative. Diverse projects like the ABC always hurt many patients internationally and many debatable authorities about Jordan’s profitability. Various studies have shown that ABC can be considered less or more as determining certain products, processes, or customers, while doing considered I heard a lot of this product and also of them, which makes it under sports shirt printing practices. As well, other concepts were appeared and regions also had Actuator. Nowadays, time-driven activity-based costing, target costing, total cost management, economic value added are some of the most relevant concepts or approaches.

Let us finish our discussion with some recent trends, developments in costing and emerging concepts, and technologies. It is being observed that cost accounting for the 21st century will have to manage multiple accounting systems, footnotes, and cost information categories, especially concerning intangible assets. Despite the new genuine strategy, some traditional activities continue to produce goods and services that are efficient, effective, and have customers satisfied. In other words, the old system does not translate into the current-use approach, especially if recent global economic growth is excluded.