Accounting is the collection and aggregation of information for decision makers including managers, investors, regulators, lenders, and the public. Accounting systems affect behavior and management and have affects across departments, organizations, and even countries. This paper will give the reader an understanding about cost accounting. This paper will discuss: Why is cost accounting so important to the success of the firm; what are the various methods of cost accounting and how are they used; how does an operating budget work to discipline a firm’s management; what are the elements of a budget; how are budgets constructed; what is variance analysis and how it is used. Cost accounting can be described as the process of accumulating,
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Clearly an operating budget is a tool you can use to prevent unexpected crises in product or service delivery due to lack of cash, credit, tools or inventory. You need an operating budget to stay in business, pure and simple. An operating budget is part of any business plan. It is the projection of what it will cost to run your business and what money will be coming in to cover those costs.
“There are five parts to an operating budget: the sales budget, the production budget, the operating expenses budget, your budgeted income statement and your cash budget. Each of these five budgets should be developed at startup as parts of a short-range plan and a long-range plan. Startup expenses include the costs of licenses and permits, of equipment, and of legal fees. Both short and long-range operating budgets cover the same costs and income categories outlined below, but creating both helps you plan, track, and assess the growth and viability of your business over the near term as well as the long haul (Hawthorne, 2008)”.
Businesses use budgets to plan for future activities and to set various goals and objectives within the company. They help the organization set specific expectations which aid in evaluating performance throughout the company. Budgeting helps organizations implement specific strategies to meet goals and objectives. It is important to note that a budget is an estimate and will