Importance And Importance Of Cost Accounting

1292 Words 6 Pages
The use of accounting in the business field to measure an entity in many aspects regarding financial information is crucial in modern day. Tracking how a business obtain, spends, and invest their financial assets are key indicators for not only external users such as investors and creditors, but internal users such as management departments. To plan for future endeavors, one must understand their present capabilities. Through extensive research, we can establish why cost accounting is important to the success of the firm, various methods of cost accounting, and how they are used.
From the process of analyzing current needs to allocation of costs for present and future requirements and projects, the use of cost accounting is very important
…show more content…
This is a great alternative to FIFO/LIFO depending on the nature of the business and the amount of items tracked and maintained through the business. The criteria for determining the choice of an allocation base ranges due to the purpose such as direct labor costs. According to Lanen et al. (2011) “At a minimum, however, an allocation base needs to be measured for each cost object before it can be used to allocate the manufacturing overhead” (p. 206). Materials, equipment, labor, and land all play a role the creation of a product. Most companies use normal or standard costing rather than actual costing due to the beneficial projection of estimates. According to Rao & Bargerstock (2011), “Standard costs, which are predetermined unit costs, estimate the costs of the output, which then are compared with actual costs incurred to determine variances that are useful for exercising managerial control” (p. 1). Measuring performance and use of standard costing is important for assigning a price to a product. Activity-based costing (ABC) is used to evaluate the most accurate cost of production of each unit. A company could realize how much more a specific unit production is compared to outsourcing, and benefit off the opportunity cost. This could be very beneficial to making operating decisions. According to Knezevic & Mizdrakovic (2010), “33% of all financial service respondents use ABC for costing …show more content…
Cost accounting has various methods that are applied to specific conditions to aid a company in their goals. Standard cost, activity-based costing, job costing, and process costing are all methods in which cost accounting is liable to provide adequate measurements and analysis on cost control. Standard cost focuses on budgeting for overhead and volumes for allocation base. Budgeting is crucial to forecast out the future and plan accordingly with minor variances. ABC is used to evaluate the most accurate cost of production of each unit. Job costing is used for. According to Lanen et al. (2011), “Job costing concepts are used when products are easily identifiable as individual units or batches of identical units” (p. 246). Process costing is used for more similar products that follow the same path to finished goods, and ultimately to cost of goods sold. A cost accountant must be professional and ethical regarding their job as they play a crucial role in business management of cost control. Incorrect calculations can throw a management department decision making off, thus this job is very important to have fine attention to detail along with integrity to report and do the right thing by the standards expected of

Related Documents