Cost Accounting System
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Cost accounting system use in the organization
Cost accounting system
A cost accounting system is a guideline used by the organizations to estimate and forecast costs of the organization's products to help in profitability analysis, firms inventory evaluations as well as controlling the costs. Hence the cost accounting system helps the organization to predict the product cost thus estimating the profit expectation after the sales of the products (Kaplan & Atkinson, 2015). Therefore it is important to forecast cost correctly since it helps will the firm to determine its profits. The cost accounting system will assist the firm to determine the products which are not profitable and the profitable ones. Hence sorting out these products will help the company to put more energy and inputs to the profitable products. Also, cost accounting system forecasting closing value of the inventories and work in progress thus help in financial preparation (Kaplan& Atkinson, 2015). Hence there are two major cost accounting systems which include: the job ordering costing and the process costing. Both are cost accounting systems but the purpose of this paper I will focus on the job ordering costing.
Job ordering costing
The job ordering costing is a cost accounting system that allocates manufacturing individual separately for each product or job. The job ordering cost is sufficiently used for the organizations which have different products, and each product is unique, and also the organization has different orders. Therefore the job costing accounting is appropriately used for the organization which produces different products (Warren et al, 2013). Hence this system fits the organization with different products and special orders. Thus the job cost accounting system will allocate and estimate a job cost record for each product, job or special orders. Hence the job cost record records the cost of materials and labor used and also account the manufacturing overheads assigned to each product and job.
Advantage and disadvantages of the job ordering costing
Advantages
The advantages of the job ordering costing system include:
• Costs assigning benefits: the job ordering costs systems helps the managers to offer clearly provide a detailed analysis of the cost of materials, the cost of labor and overheads of each material and job. This helps them to identify the profit of each product or job and hence determining whether the job or product is worthy pursuing it.
• Helps in comparison of the actual cost and estimated costs. This will assist the organization management to determine the efficiency and effectiveness of different jobs in the organization.
• Determines and ranks the most profitable product and job in the organization. Since the job ordering costing considers the cost of each job and the cost of each product will help the management to determine the products or jobs which are profitable and identifying the jobs which are incurring the loss (Warren et al, 2013). This helps management in making an appropriate decision on the product or jobs to add more input.
• Helps in detecting defectives in the organization jobs and orders thus helping the management to address them. Also, helps in determining overheads in each job and each product (Salako & Yusuf, 2016).
• The job ordering costing helps the estimating costs thus helping in future planning.
Disadvantages
The disadvantages of the job ordering costing system include:
• Involves a lot of paperwork or recording thus daily recording of the each job outcome and product outcomes and their overheads hence time-to consume and very expensive (Weygandt et al, 2015).
• Room of making mistakes is very higher due it involves a lot of recording.
• Difficult arise in comparing the different jobs hence the system is prone to mistakes.
How the organization use the accounting information to improve financial management
The accounting information helps the organization to improve financial management in several ways which include:
• Tracking business performance: this will help management to know the business achievement and failures thus making a sound financial decision when allocating capital in the organization projects.
• Cost estimates help the organization to increase effectiveness and efficiency in the organization operations.
• Helps the organization to improve its budget and also helps in future planning. Hence proper budgeting and planning will improve organization financial management (DRURY, 2013).
Therefore accounting information is crucial tool in improving financial management since it helps in making appropriate decision when allocating monetary capital in the company operations. Also, accounting information increases efficiency and effectiveness in organization thus reducing the cost of production hence improving financial management of the organization.
References
DRURY, C. M. (2013). Management and cost accounting. Springer.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Salako, M. A., & Yusuf, S. A. (2016). Cost Accounting: A Pivotal Factor of Entrepreneurial Success.
Warren, C. S., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage Learning.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.
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