Key Issues in Cost Accounting Essay

3248 Words Oct 11th, 2012 13 Pages
Introduction and background

Cost accounting is the process of accumulating, measuring, analyzing, interpreting and reporting of the information related to the cost. This type of process is useful and relevant for all internal and external stakeholders of the business entity. In the management accounting, the term cost accounting includes the works of establishing budget and actual cost of operations, processes, departments, analysis of the variances and profitability or social use of the funds. In the external stakeholders we include all those who have invested money in the company, such as banks, financial houses, investors and others. Internal stakeholders are those people who work within the premise of the company, such as business
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In the early twentieth century, these costs were of little importance to most businesses. However, in the twenty-first century, these costs are often more important than the variable cost of a product, and allocating them to a broad range of products can lead to bad decision making. Managers must understand fixed costs in order to make decisions about products and pricing.
Problem statement

Accounting theory and practices have identified financial management, financial accounting and management accounting as distinct entities and granted them independent status. Unfortunately, cost accounting which also appears to many users of accounting data and information as fit to be an independent stream of knowledge, has been denied this opportunity. In many circles, this is considered a very unfair treatment and must be corrected if the accounting discipline has to meaningfully grow. The report is therefore intended to investigate the application of cost accounting techniques in the management and running of modern business.

Why cost accounting?

Managers in Mukwano industries limited rely on cost accounting to provide an idea of the actual cost of processes, departments, operations or product which is the foundation of their budget, allowing them to analyze fluctuation and the way funds are used socially for profit. It is believed that if more companies had better cost accounting, there wouldn’t be the issues there are in the downturn in the economy today.

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