...Cost Accounting : An Introduction MODULE - 6B Elementary Cost Accounting 27 COST ACCOUNTING : AN INTRODUCTION After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. Many factors are considered while fixing the price of a product/item such as competitors’ price etc. One of the basic factors is the cost of its production. Cost is essential not only to fix price but also to ascertain the margin of profit. Knowledge of the cost determination is also necessary to keep a check on the cost of product/control on wastages, etc. The accounting used to study the various aspects of cost is known as cost accounting. In this lesson, you will learn about meaning, importance, limitations etc. of cost accounting. Notes OBJECTIVES After studying this lesson, you will be able to: state the meaning and scope of cost accounting; explain the objectives of cost accounting; differentiate between cost accounting and financial accounting; state importance of cost accounting; explain limitations of cost accounting. 27.1 MEANING AND SCOPE OF COST ACCOUNTING Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides...
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...MODULE - 6B Elementary Cost Accounting Notes 95 Cost Accounting : An Introduction ACCOUNTANCY After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. Many factors are considered while fixing the price of a product/item such as competitors’ price etc. One of the basic factors is the cost of its production. Cost is essential not only to fix price but also to ascertain the margin of profit. Knowledge of the cost determination is also necessary to keep a check on the cost of product/control on wastages, etc. The accounting used to study the various aspects of cost is known as cost accounting. In this lesson, you will learn about meaning, importance, limitations etc. of cost accounting. OBJECTIVES After studying this lesson, you will be able to: state the meaning and scope of cost accounting; explain the objectives of cost accounting; differentiate between cost accounting and financial accounting; state importance of cost accounting; explain limitations of cost accounting. 27.1 MEANING AND SCOPE OF COST ACCOUNTING Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides the ...
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...the observations that are collected as part of a research effort which is usually represented by units. These units possess values and are often numerical. Importance Everyone uses measurement without even noticing it sometimes. In studying measurement theory, I realised that measurement involve in many of our daily activities without us even noticing it sometimes. Some examples include measuring our heights and weights, measuring the nearest and shortest distance to get to class, measuring the time taken to complete an assignment and many more. Therefore, it can be said that measurement theory is definitely important and useful for everyone. Understanding the importance of measurement theory is crucial to address issues in business, accounting, social and economics. Importance of measurement in Accounting Why is measurement theory important? Well, it is important for three simple reasons. It is important to make decisions, assess performance and positions and make comparisons. Let’s look at accounting perspective first. In accounting, almost everything is being measured which includes expenses, revenues, assets, liabilities and profits. Accountants use measurements to report information to internal and external users via financial statements. Financial accounting measurements are typically recorded at historical cost or...
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...EMPIRICAL INVESTIGATION OF THE EVOLUTION OF MANAGEMENT ACCOUNTING PRACTICES by Magdy Abdel-Kader University of Essex and Robert Luther University of Bristol WP No. 04/06 October 2004 Address for correspondence: Magdy Abdel-Kader Department of Accounting, Finance and Management University of Essex Colchester Essex CO4 3SQ UK E-mail: mabdel@essex.ac.uk 1 An Empirical Investigation of the Evolution of Management Accounting Practices Magdy Abdel-Kadera and Robert Lutherb a: Department of Accounting, Finance and Management, University of Essex, Wivenhoe Park, Colchester, CO4 3SQ (Correspondence address) b: Bristol Business School, U.W.E., Bristol, BS16 1QY The authors are grateful for the constructive comments of participants at the EIASM conference on New Directions in Management Accounting: Innovations in Practice and Research, December 2002, Brussels. Financial support from the Chartered Institute of Management Accountants is acknowledged with gratitude. 2 An Empirical Investigation of the Evolution of Management Accounting Practices Abstract This paper investigates and reports on the status of management accounting practices in UK industry. The analysis operationalises the IFAC statement on Management Accounting Concepts and its description of the evolution of management accounting. The results, based on responses from 123 practising management accountants, suggest that the management accounting employed in many UK industrial companies is not particularly...
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...Definition of 'Accounting Information System - AIS'The collection, storage and processing of financial and accounting data that is used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting statistical reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities. | Answer:There are various importance of accounting information to a business entity. Getting to know what an accounting information is and the importance (need) of it is a great step to improving one's capital base, both from the finance aspect to the resources (raw materials) an organisation uses in carrying out its objectives. An accounting information is simply the data which an organisation/business entity is able to make known to its users. It should be taken note that these users of accounting are of various sections - to which a business entity is one of. A business entity will require an accounting information so as to enable it manage and control its finances and resources. It also needs it for it to be able to improve on its level of profit earning, should it realises it is declining in its profitability level. It also needs to for it know the differences between its marginal liability and its marginal assets. There are so many importance of a business information to a business enterprise, but the...
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...STUDIES DEPARTMENT OF FINANCE AND ACCOUNTING BACHELOR OF BUSINESS ADMINISTRATION (BBA) COST AND MANAGEMENT ACCOUNTING (BBA 314) COURSE WORK SEMESTER ONE: 2012/2013 Henry Egyeyu 07/U/456/BAK/PS Tel: +256774366667/+256714366667 Question: 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. As an upcoming professional in the field, develop a logical position on the cost accounting issue relating it to a practical scenario (case study) in Uganda. Your argument should be presented inform of a report addressed to: Director, cost concern international (Uganda chapter) P.o. Box 17 Kampala Important Response Information: i. The report must be 6-7 (six to seven) pages, well-edited. ii. Strictly use Times New Roman fontage, Font size 12, and 1.5 spacing iii. You must sign the report and provide your phone contact. iv. The report must be submitted within exactly 30 (thirty) days from the date of receipt. Henry & Egyeyu Consultancy P.o box 26031, Gulu 1st October, 2012 The Director- Cost concern international (Uganda chapter)...
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...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 or company directors, division heads and managers. Cost accounting has long been used to help managers understand the costs of running a business. Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs to help business owners and managers make decisions. In the early industrial age, most of the costs incurred by a business were what modern accountants call "variable costs" because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this as...
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...The Importance of Managerial Accounting ACC206: Principles of Accounting II May 16, 2012 The Importance of Managerial Accounting Every business whether large or small has a need for an accountant. Accountants are expected to know about the business from top to bottom and are responsible for reporting numbers and figures on financial statements for outside as well as inside decision-makers. The type of accounting that reports to inside decision-makers is managerial accounting. Without this vital information reported by managerial accounting, the business will not be able to operate in a profitable manner. This will be a brief discussion about managerial accounting by answering a few questions such as; what is management accounting, what are the sources of data, and how are the data used to make management decisions, all reflecting in the importance of managerial accounting to any business. Managerial accounting provides vital pieces of financial information about a business’s operations to inside decision-makers allowing them to analyze the business in a more profitable manner. “Managerial accounting provides information to help managers plan and control operations as they lead the business” (Horngren, et al., 2012, p.775). Not only does managerial accounting provide the financial information, but it also “includes managing the company’s plant, equipment, and human resources” (Horngren, et al., 2012, p.775). All of these different departments of a business offer...
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...resource accounting Human Resource Accounting is a method to measure the effectiveness of personnel management activities and the use of people in an organization. Historical cost approach This approach is developed by Brummet, Flamholtz and Pyle but the first attempt towards employee valuation made by R. G. Barry Corporation of Columbus, Ohio in the year 1967. This method measures the organization’s investment in employees using the five parameters: recruiting, acquisition; formal training and, familiarization; informal training, Informal familiarization; experience; and development. The costs were amortized over the expected working lives of individuals and unamortized costs (for example, when an individual left the firm) were written off. Limitations * The valuation method is based on false assumption that the dollar is stable. * Since the assets cannot be sold there is no independent check of valuation. * This method measures only the costs to the organization but ignores completely any measure of the value of the employee to the organization (Cascio 3). Replacement Cost approach This approach measures the cost of replacing an employee. According to Likert (1985) replacement cost include recruitment, selection, compensation, and training cost (including the income foregone during the training period). The data derived from this method could be useful in deciding whether to dismiss or replace the staff. Limitations * Substitution of replacement cost method...
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...Generally Accepted Accounting Principles in Healthcare Generally Accepted Accounting Principles or GAAP was developed from different accounting entities, one of which was the Financial Accounting Standards Board or FASB. GAAP is a group of standards for accounting with common industry language developed over many years and used by businesses to organize financial information. The main purpose for GAAP is to make a standard way for anyone to pick up a financial statement and be able to compare financials using the same set of rules. GAAP is an accounting method used in health care facilities. These are specific policies that are used when the health care institution must make important financial decisions. To understand financial statements, the importance and relevance of GAAP must be understood. These standards guide accountants in the measuring and reporting of financial events of healthcare entities such as hospitals, clinics, not-for-profit groups, and other healthcare related businesses. The information used in these financial statements must be relevant, reliable, and comparable. Some of the concepts or principles used in the preparation of financial statements by way of GAAP are discussed below. Accrual Principle The accrual principle simply means that accounting transactions should be recorded in the period that they occur rather than when the cash flows related to them occur. In the healthcare field, all revenue earned for in-house patients should be recorded...
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...Shannon Carl ACC 310 Cost Accounting 1 Analysis of Cost Accounting Jess Stern 5/28/2012 “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, 2012). By analyzing the importance of cost accounting to the success of a firm, we will get a better understanding as to why companies use this type of accounting process. Becoming knowledgeable about the various methods of cost accounting and how they are used will enable the company to operate the process appropriately. Understanding how an operating budget works to discipline a firm’s management is also useful information when running a company. To do so, one needs to know the actual elements of the budget and how they are constructed. Lastly, one more beneficial piece of information to comprehend would be what a variance analysis is and how it is used. In the midst of discussing the previous items, there will be various elements that relate to the above topics in which there will be further detail provided. First, why is cost accounting so important to the success of the firm? “Managers 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” (Llango, 2009)...
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..."USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL Concept" By samya Alakhdar , Dr . Moade Shubita , NYIT –AMMAN –JORDAN FALL-2011. Key words :managerial accounting , cost accounting , CVP. o "USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL CONCEPT" 1 DR.MOADE SHUBITA "USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL Concept" By samya Alakhdar , Dr . Moade Shubita , NYIT –AMMAN –JORDAN FALL-2011. Key words :managerial accounting , cost accounting , CVP. TOPICS TO COVER: ABSTRACT INTRODUCTION PROBLEM ASSUMPTION UNDERLYING CVP ANALYSISI THE CONTRIBUTION MARGIN. CONTRIBUTION MARGIN INCOME STATEMENT DEFINE THE BREAKEVEN POINT WHAT IS THE C.M RATIO. THE IMPORTANCE of UNIT CONTRIBUTION MARGINE DETERMINATI SOME APPLICATIONS OF CM “WHAT IF “ANALYSIS ON OF TARGET INCOME AND TAXES MOS- MARGINE OF SAFETY CHOOSING THE COST STRUCTURE TO DECREASE COST ULTIMATELY DEGREE OF OPERATING LEVERAGE DEGREE OF OPERATING LEVERAGE IMPORTANCE FOR MANAGERS SALES MIX . CASE TO STUDY. LIMITATION OF CVP CONCLOUSION REFERENCES 2 DR.MOADE SHUBITA "USEFULNESS OF COST VOLUME PROFIT ANALYISI AS AMANGERIAL Concept" By samya Alakhdar , Dr . Moade Shubita , NYIT –AMMAN –JORDAN FALL-2011. Key words :managerial accounting , cost accounting , CVP. ABSTRACT: In order to cope with many planning decisions managers use cost volume profit analysis , They find it an extremely useful measurement in a variety of ways . The present...
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...ATTACHMENT E THE FASB’S CONCEPTUAL FRAMEWORK: RELEVANCE AND RELIABILITY Financial Accounting Standards Advisory Council September 2004 INTRODUCTION At the March and June 2004 FASAC meetings, FASAC members discussed aspects of the Board’s conceptual framework, including the need to update, refine, and complete it, and issues relating to the liabilities definition. At today’s meeting, FASAC members will consider other issues relating to the conceptual framework, specifically issues related to the qualitative characteristics of relevance and reliability. Some FASAC members and other FASB constituents have questioned certain of the trade-offs between relevance and reliability that the Board has made in setting accounting standards. Specifically, they have questioned the appropriateness of the trade-offs that the Board has made in requiring financial statement measures that reflect fair values rather than historical costs. Their underlying presumption seems to be that historical costs, while perhaps not as relevant as fair values, are clearly more reliable. In those instances, they assert that the trade-off between relevance and reliability should favor historical costs rather than fair values. Some who question the Board’s trade-offs seemingly believe that reliability should be the dominant characteristic of financial statement measures. Others appear to interpret reliability as having a meaning that differs in at least certain respects from how that term is defined in the conceptual...
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...Introduction: The primary purpose of financial and accounting management is to organize, plan, control and direct the financial and accounting activities, but to ensure that every stakeholder is adequately served. The effectiveness of financial and accounting management, therefore purely depends on the policies, regulations and frameworks that are designed and being evolved from time to time. According to Gray, Owen and Adams (1996) financial management is the core business discipline which is meant to ensure that financial resources are deployed in the most effective manner, within the best interest of every group of stakeholder. Moreover, the importance the financial management also increases in current business context because of the fact that economic and financial contexts have become uncertain and unpredictable in every region across the world. At the other end, financial management also supports the business activities and operations which include investment decision making, pricing, financial reporting as well as to meet the legal and regulatory obligations. This report also focuses on the different aspects of financial analysis and management to reflect its validity, reliability and usability in practice. The purpose of this report is to understand and examine the different aspects of financial management, which will be helpful to understand the effectiveness of financial management and its different aspects. In order to achieve the report’s objectives, below paper...
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...ACCOUNTING THEORY AND PRACTICE (FAR 600) Teaching and Learning Arrangements (SEMESTER: JAN 2007 – APRIL 2007) COURSE CODE : FAR 600 PROGRAM : BACHELOR OF ACCOUNTING (HONS) CREDIT HOURS : 4 CONTACT HOURS : 4 STATUS : CORE SYNOPSIS This financial accounting course exposes students to accounting theory, corporate accounting policies and financial reporting practices. The importance of history is introduced through a brief discussion on accounting history from both experiences of both western and Muslim Civilization. In understanding the theoretical framework of accounting, the various perspectives on financial accounting theory are examined with particular emphasis on their rationale and implications on accounting practice. General concepts of theory formulation are discussed and types of accounting perspectives and research are also introduced in this course. Corporate Accounting Policies are explained by the development of the Conceptual Framework and the Importance of a Regulatory Environment. The Standard Setting process in Malaysia is discussed. An analytical approach of the accounting standards is adopted by examining the recognition, measurement, disclosure and presentation of accounting information is discussed. Significant emphasis is placed on Asset Measurement, Nature of Liabilities, Types of Equity, Recognition of Revenue and Income Finally contemporary accounting practices and...
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