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, …show more content…
“The budget provides the manager with basic information about the unit's operations, supplies raw material to make better sense out of those operations, and helps to avoid operations that are using up money too fast “(Iaconetti, 1986, p. 22)”.
Expenditure, in any budget, is shown in three categories: labor, materials, and services (sometimes called overhead and indirect cost). Within each element of the budget the items will be: fixed costs which are expenses that stay the same regardless of the amount of activity in the project or variable costs which are expenses that increase with the level of activity in the project. Labor costs consist of the wages, salaries and honoraria paid to individuals directly involved in implementing the project. Labor costs are calculated by multiplying the personnel time needed in the project by the unit cost of the resource.
The unit costs for personnel are usually in hours or days. Cost of materials includes the costs of supplies, equipment and tools actually used during the activity. Service costs are all the costs of the project other than labor and materials. These are costs that cannot be assigned as costs directly to activity within the project. For capital items, depreciation is a way of allocating part of the cost of the item to a particular project.” Depreciation is used in projects to allocate a
A budget plan is the most effective way to keep the business and its finances on track. It gives you the opportunity to review the business’ performance and any factors that are affecting or may affect your business. Also to manage your money more effectively, allocate appropriate resources, monitor performance, meet planned objectives and plan for the future.
Managerial accounting is essential for decision making. Making the best choice depends on the manager's goals, the anticipated results from each alternative, and the information available when the decision is made (Schneider, 2012). The different techniques associated with managerial accounting are very helpful in the decisions that need to be made. In order to truly understand decision making with managerial accounting one must first discern exactly what managerial accounting means and some of the techniques associated with it. The definition of managerial accounting will be discussed along with the techniques of cost management techniques, budgeting, and quality control.
More paperwork is required in a job-order system. Labor & materials are assigned to departments in a process-costing system. In a job-order system, labor and materials must be tracked to each job, requiring time tickets and more use of materials requisitions.
Budgeting systems turn managers’ perspectives forward and by looking to the future and planning, managers are able to anticipate and correct potential problems before they arise (Horngren, Foster & Datar, 2000). Through budgeting, management can plan ahead and maintain enough cash to pay creditors, to have adequate raw materials to meet production requirements, and to have sufficient finished goods to meet expected sales (Kieso, 2002).
Direct material costs change due to the quantity, range, quality and price of materials required according to the specification for the order each time a unit of the product or service is produced. Direct labour costs are driven by the number of hours required and the rate per hour each product unit that has been set for each labour grade.
According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.
- Fixed price for services, material, and labor at cost: “Direct materials” means those materials that enter directly into the end product, or that are used or consumed directly in connection with the furnishing of the end product or service. (Types of Government Contracts, 2012)
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).
Bhimani, A., Horngren, C., Datar, S., Rajan, M. et al. (2012) Management and Cost Accounting. 5th ed. Edinburgh: Prentice Hall, p.369 - 378.
Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining?
The board of directors of the Cortez Beach Yacht Club (CBYC) is developing plans to acquire more equipment for lessons and rentals and to expand club facilities. The board plans to purchase about $50,000 of new equipment each year and wants to begin a fund to purchase a $600,000 piece of property for club expansion.
Budgeting is crucial in the well-being of a company especially the financial health status of a company. In fact, no professionally managed firm would fail to budget, since the budget establishes what is authorized, how to plan for purchasing contracts and hiring, and indicates how much financing is needed to support planned activity. It is routine for a company to budget for its expenses. Expense budgets act as a guideline of how much revenue a company would require keeping the activities running. It is used to set the company’s targets for a certain period.
A direct cost can be traced to a product or service which includes: Direct labor- which is the cost of the labor that’s directly connected to a product or services. Direct labor is sometimes called touch labor, since direct labor workers typically touch the product while it is being made.( Ray H. Garrison, Eric W. Noreen and Peter C. Brewer p 39-40) An example of direct labor is an assembly line worker. Labor cost that cannot be physically traced to the creation of products, or that can be traced only at great cost and inconvenience, are considered to be indirect labot.( Ray H. Garrison, Eric W. Noreen and Peter C. Brewer p 40) Direct material are those materials that become an integral part of the finished product and whose cost can be traced to the finished product.( Ray H. Garrison, Eric W. Noreen and Peter C. Brewer p39-40) Manufacturing overhead is the third element so manufacturing cost, it includes all costs of manufacturing except direct materials and direct labor. Manufacturing overhead includes items such as indirect materials; indirect labor; maintenance and repairs on production equipment; and heat and light, property taxes, depreciation, and insurance on manufacturing facilities. Only cost associated with operating the factory are consider to be manufacturing overhead cost. A company also incurs other costs associated with its selling administive functions, but these costs are not included as part of manufacturing overhead. Only those
Erin should notify Smart Worx of the postponement as it is consistent with ethical principles of integrity and professional competence. As Erin is complying with these codes of ethics, she has nothing to lose or suffer as she followed the guidelines of the code and therefore cannot be