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Cost Accounting

     Accounting is the collection and aggregation of information used in decision making by managers, investors, regulators, and the public. Accounting can be a driver within the context of firms operations and success. There may reasons as to why accounting is essential infirm operation and survival (Jawahar-lal, 2009). Today's business owners need to understand the language of cost accounting. Firms' success is determined by the accounting systems.

Accounting is significant for firms because it assists in firm survival and firm operational. The primary function of accounting is to record the transactions of a company for incoming and outgoing needs of cash to be recorded. For financial statement, cost accounting assists an accountant to prepare the firm's yearly financial statement. Additionally, financial statements also help in securing investors and, hence, act as working capital. In taxation process, cost accounting assists in preparing the firms yearly tax returns rapidly and efficiently (Khan, & Jain,)

Cost accounting refers to organized information designed for managers for decision making in an organization. It may also refer to as the process of collecting information about the costs of a firm's activities, assigning selected costs to goods and services, and assessing the efficiency of the cost usage. Cost accounting mostly involves itself with development of firm's returns and losses, and provides input into decisions making to generate revenues in future (Hongren, & Foster, 2003). Originally, cost accounting had been useful in assisting managers understand the costs of running a firm. Cost accounting originated during the industrial revolution. During this era, there was a difficulty in developing a large scale business and making the right decisions.

Therefore, cost accounting was found out to be crucial for the firm's development, recording and tracking costs (Maher, & Rahan, 2005). Cost accounting plays a crucial role in management, planning, controlling and decision making. Planning is achieved by a successful business when the business prepares for futureby carefully setting financial and non financial objectives with the planning (Maher, & Rahan, 2005). The managers are able to identify the prime costs, production costs, and total costs from the costs accounting statements. In controlling under management, cost accounting focuses on comparison of actual results to those of the actual performance and the correlation of any crucial difference.

Usually, in firm operation managers or owners of firms need to make sure there no wastage in operations to reduce costs such as prime costs ( Jawahar-lal, 2009). Finally, in the decision making process, cost accounting is useful because it provides details as from the sources of the costs, their performance and actions composition and nature. In the process, the company can, therefore, decide whether to continue producing a particular product or not (Maher, & Rahan, 2005).

Managers in an organization rely on cost accounting since it provides an idea of the actual activities, departments and operations that are the principal foundation of business budget allowing making profit. Cost accounting can also be used to justify the manager's ability to reduce the expense s for the firm in order to maximize its profit, hence success .

Cost accounting is taken as a pragmatic process because it is an internal tool that does not follow the Generally Accepted Principles. Additionally, cost accounting creates financial value for the firm's products by measuring the currency that is nominal into units that are evaluated by convention. This is an extremely prominent part of management accounting process because managers are able to determine the possible ways of increasing the firm's profitability as well as reducing the costs of production in the future (Jawahar-lal, 2009).

What are the various methods of cost accounting and how are they used?

Firms have adopted different methods for determining cost s of their goods and services. Normally, the method depends on the nature of fabrication and the type of outputs in a firm or industry. For instance, in a job accounting costs, there is the evaluation of cost of each job or work order. The system is followed by these concerns when job is done by clients, for example, in a printing press company the managers need to prepare the profits and losses if any for each of the services provided. Contract costing also focuses on contracts work like construction of roads by civil engineers. In cost accounting, each of the contract service is treated as separate cost units for each of the establishment and control.

Standard cost accounting: this deals with the concepts of recording historical costs by allocating fixed costs over a given period of time to the goods produced during that period. The overall costs are, therefore, recorded as the total costs incurred during production of goods and services. The method uses the full cost of products for the products that were not soul initially sold and recorded in the inventory (Hongren, & Foster, 2003).

This method is significant to managers because it enables them to pay no attention to the foxed costs, and focus on the each period to the standard cost of a charitable or service (Khan, & Jain, 2003). An activity based costing is another cost accounting that focuses on assigning costs to products based on the activities they need. For based-activity method, activities refer to those actions performed inside the business. During accounting, the accountants dispense the workers 100% time to different activities performed inside a business. They then establish that the total cost spent on each activity by adding up the totals of each employee's salary on that activity.

References Hongren, D. & Foster, (2003). Cost accounting: a managerial Emphasis. New York: Prentice Jawahar-lal, L. (2009). Cost Accounting. New Delhi: McGraw-hill Publisher. Khan, & Jain. (2003). Cost Accounting. New Delhi: McGraw-hill Publisher Maher, L., & Rahan, G., (2005). Fundamental of cost Accounting. London: McGraw-Hill.

Copyright (c) 2012 Morgan D

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Posted on 2012-12-05, By: *

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