What is the Importance of Cost Accounting?
ACC310: Cost Accounting I (BBJ1220A)
Instructor: Ashley Harper
June 18, 2012
This paper seeks to explain the practices and principles of cost accounting and their overall effectiveness in assisting a company in minimizing costs where possible and optimizing the return on the costs that are necessary.
Every year, no matter the overall state of the economy, businesses both old and new experience huge successes and huge failures. Every business has the potential and the intention to capitalize on profits and to become perpetually successful. What is the difference between the businesses that are able to do ...view middle of the document...
In the United States, this information and the methods by which it is obtained, analyzed and presented to the shareholders are set forth in the Generally Accepted Accounting Principles, or GAAP. The GAAP are a set of techniques for formulating accurate accounting information. The principles provide for uniformity, reliability, relevance and comparability. This basically means that GAAP strives to sustain correct accounting methods to promote precise financial statements.
One of the facets of cost accounting that is not regulated by GAAP standards is cost data that is used for decision making. Managers have some leeway in this regard, as it allows them to determine how to classify individual costs on a case by case basis, as long as management does not try to use this leeway to hide costs or to deceive shareholders. Most cost information is used internally to influence and direct decision making within the company and is not reported to those outside of the company and is therefore not subject to GAAP. There is very little potential for the latitude allowed to companies in this area to lead to deception in their final reporting of their accounting information to the public and to shareholders. The cost information that is referred to managers in order to assist in the decision making process is not typically relevant to the company’s bottom line or to its overall financial picture. This is because the costs are necessary expenditures that will occur eventually, regardless of the immediate decision that is made by management. GAAP does not apply to this information for this reason.
Managerial accounting focuses on the input of information from funding, operations, suppliers and competitors. This information is used to in the decision making process and planning for an organization. While cost accounting evaluates expenses that takes to run a business such as materials, labor, and overhead. This information is used to enhance the proficiency and effectiveness of overall costs to reach the common goals of a business. Cost accounting data is primarily used internally by management in the decision making process and planning for an organization.
During this course I have learned that one benefit of cost accounting is that it translates information that can evaluate business operations, minimizes and redirects costs, and allocates any business program or activity accordingly. Cost accounting has many advantages; it supplies indispensable information in regards to a business' operations, production costs, materials, labor, and plant capacity. This information assist in future decisions to ensure the...