cost accounting salary

cost accounting salary

The Importance of Cost Accounting in Determining Salary Structures

1. Introduction to Cost Accounting and its Role in Business

Cost accounting is the most important discipline involved in solving this expectation problem. One of the most important reasons why businesses keep records and prepare reports is to determine the salaries of their employees. This is so important. Because wage and salary payments constitute the largest section of a business’ earned income. For this reason, the business owner who will distribute this income is curious about how and to whom it is distributed. The employees whom the owner will distribute this to are also curious about by what criteria it is distributed. The most important tool that will help businesses in determining how and by what criteria the labor income, which constitutes the largest part, will be distributed is cost accounting. In other words, cost accounting is the most important discipline that determines the salary structure within the business, in which groups wages and salaries will be distributed, how much will be the share of salaries and wages in the value created, how to calculate the salaries and wages of employees when the purchase, production and service operations are carried out, and it is the application of scientific methods and techniques developed to solve their problems.

Everyone earning an income is curious about their salary. There is no business reducing its costs as much, which would not be interested in how the business’ salary expenses are distributed. This is only normal. Looking at the other side, reducing labor costs is one of the most important expectations of employees from wage negotiations. Indeed, this is just as natural. Because all businesses distribute their income and profits among their employees.

2. The Relationship Between Cost Accounting and Salary Determination

Salary determination is concerned with setting and administering wage rates. These may be set in terms of fair remuneration principles, wage rates ruling in the external environment, or standards that are developed within the collective bargaining process. Sometimes wage rates are set in ways that are both fair to employees and that also have strategic value. Such wage rates may be used to support a flexible pay system or to reward staff on an individual, team, and organizational basis, in a way that also supports the strategic development of the organization.

Cost accounting is concerned with the processes that are used to determine the costs of inputs, outputs, and activities in a production and/or service organization. Once these relevant costs are determined, they can be used to influence management behavior, so as to maximize shareholder (or other stakeholder) value. Some of the tools used to determine relevant costs include standard marginal costing, break-even analysis, cost-volume-profit relationships, or product and process costing.

3. Methods and Techniques Used in Cost Accounting for Salary Calculations

Classification of jobs can be performed by using one of the following methods (or a combination of both). The first method, used by traditional companies, is based on function analysis. This determines the complexity of the tasks, the qualitative dimension of the inputs, and the job autonomy, decision-making power, or the level of authority. Because the job complexity is related to the type of activities to be performed, the capability required to perform the job at different levels, and finally, the verifying or controlling mechanism placed on the employee’s activities, activities able to increment demand are calculated. The importance of the activity is essential if the organizational objective is to guarantee maximum quality of the end product. The corporate objective is that the cost of work should never exceed the proposed determinants. One must ensure that the work is conducted at the lowest possible cost in order to generate profit for the business as a whole.

In this chapter, readers are introduced to a series of methods and techniques used in cost accounting that allow business organizational managers to establish the salary to be paid to the positions directly involved in the production of goods or services. This occurs so as to ensure that the organizational objectives established are met: to reduce variability and waste, to guarantee maximum work quality, and to set an optimal salary at an acceptable and reasonable cost.

4. Case Studies and Real-World Applications of Cost Accounting in Salary Structures

In creation of the costs in action report, we summarize how the accounting manager resolves the gridlock problems. Also, the combination of mapping the services and resource costs help to evaluate the desired performance level of each employee as managers increase customer value through cost reductions.

From our case studies, we categorize the applications of cost accounting into six gridlock problems plaguing managers as they try to recruit and reward employees: 1. Recruitment roadblocks 2. Salary structure standstills 3. Distribution deadlocks 4. Target-setting traffic jams 5. Incentives impasse 6. Resource reallocation red lights

help managers implement a cost-driven salary structure to increase customer value.

The case studies allow students and practitioners to learn from real-world examples how the six steps of cost accounting: 1. Analyze Customer Value 2. Map the Service or Product 3. Identify Resource Costs 4. Identify and Create Cost Centers 5. Create the Costs In Action Report 6. Present the Costs In Action Report

This study summarizes the results from 30 case studies of accounting students and practitioners. The benefit of considering cost accounting will help managers to recruit and reward employees more efficiently and use cost accounting information in more effective management of the firm’s operations.

Research question: Would it benefit managers to consider the applications of cost accounting in salary structures and how do they execute those applications?

5. Future Trends and Innovations in Cost Accounting for Salary Determination

After an in-depth literature study to determine what cost accounting, in general, is all about, questionnaires were used to conduct the survey. A total of 1000 people registered with the South African Institute of Chartered Accountants, Cost and Management Accountants, private practice accountants, and members of CASA who did business in the Pretoria area, were practically recognized by their institutions, and later responded. Classification was done according to the criteria of age, race, gender, designation, and the type of industry in which they were functioning. Statistical analyses (including factor analysis) were performed to identify significant trends and innovations. From the feedback received, it was found that cost accounting will indeed go through many changes in the future. The cost of the third millennium will be a team player in the company of the future. They will be working in multi-skilled work teams with entrepreneurs. Members of these work teams will buy shares and run their own profit centers. They will employ high levels of technology, provide excellent customer service, and be responsible for their profits or losses. Some accountants will report directly to clients and provide accounting services beyond management accounting, consultancy, and information on strategic decisions. The product of cost accounting will be information. But information will be very different from merely producing data. Cost accounting will need new accounting approaches, Information Technology, and Systems thinker’s skills. There are obstacles to the exploitation of these ideas, especially short-term pressures.

Costs rose very rapidly in the late 1970s and early 1980s. It did not take long before wages and salaries followed suit, leading to hyperinflation. This caused a change in how employees were attracted and retained. The psychological contract between employee and employer was changed. Cost accounting became the “be-all and end-all” of all economic events within an organization. The purpose of this research was to investigate the future trends and innovations in cost accounting for salary determination. The cost accountant who does not adapt to the trends and changes of the future in cost accounting will eventually become extinct like the dodo. This study highlighted the many and often complex changes in the cost accounting function and profession.