Cost Accounting: Its role and ethical considerations
Introduction:
Accounting is the process of identifying, measuring, and
communicating economic information about an entity for the purpose of
making decisions and informed judgements. The major areas of within
the accounting are: Financial Accounting, Managerial Accounting/Cost
Accounting and Auditing- Public Accounting
Managerial accounting is concerned with the use of economic and
financial information to plan and control the activities of an entity
and to support the management in planning and decision-making process.
Cost accounting is the subset of managerial accounting and it helps
management in determination and accumulation of product, process or
service cost.
Role of Cost Accounting:
Increased competition and uncertain business conditions have put
significant pressure on corporate management to make informed business
decisions and maximize their company?s financial performance. In
response to this pressure, a range of management accounting
tools and techniques has emerged. One of the most important tools that
a management can use is - Cost Accounting. Cost accounting helps
management in making strategic decisions by identifying an
organization?s comparative strengths and weaknesses and a better ways
to use, improve or eliminate them. Cost information is used for many
different purposes:
· Performance measurement;
· Cost reduction and control;
· Determination of reimbursement and fee or price setting;
· Program authorization, modification, and discontinuation decisions;
and
· Decisions to contract out work or make other changes in the methods
of production or delivery of services.
Cost accounting provides various tools for example: Cost-benefit
analysis, break-even analysis,
and CVP to help management in making decisions.
Role of Ethics in Cost Accounting
Webster's Dictionary defines ethics as "...the principles of conduct
governing an individual or a profession: the discipline dealing with
what is good or bad or right and wrong, or with moral duty and
obligation; a particular theory or system of moral values". Ethics are
very important in any field. In cost accounting also ethics play an
important role. Ethical situations can easily arise in any business
setting when money is involved. . The whole Enron saga was the result
...
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...g is an important tool that can help management in
making informed decision. Though it is not legally required but still
it is necessary to run an entity effectively. Cost accounting is
turned toward the future. There are different methods of costing in
Cost Accounting: Absorption costing and Variable costing. Both have
some merits over the other.
An entity can use both of them for different uses. Absorption costing
can be used for external reporting, managers need to review the effect
of their decision on financial reporting to outsiders whereas Variable
costing can be used by managers to review the effect of management
decisions on production, costs and profits.
References:
Absorption, Variable, and Throughput Costing. Retrieved on December15,
2004 from
http://www.kellogg.nwu.edu/faculty/balachan/htm/Acct439/Solutions/solution_manual19.doc
Hilton, Ronald W: Cost Management: Strategies for Business Decisions,
Second Edition:
Marshall: Accounting, What the Numbers Mean, Sixth Edition: 3-8
Turner, Robert M: Ethics and professionalism: the CPA in industry,
April1990. Retrieved on December15, 2004 from
http://www.nysscpa.org/cpajournal/old/08416230.htm
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
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"College Accounting Coach." Process Costing-Definitions And Features(Part1) « Process Costing « Cost Accounting «. Feb. 2007. Web
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