Week 4 Term paper

Research and summarize a review of the literature on your topic – briefly describe the literature and how it relates to your term paper. The topic is managerial accounting / cost accounting. 

Overview of Cost accounting

Cost Accounting is a branch of accounting which is used to record costs that are incurred by the firm in its operational activities. The costs that are generally recorded are costs of labor, material cost, overhead cost, maintenance cost. The main aim of cost accounting is to identify the costs incurred on a product and also recognizing the wastes so that costs and wastes are reduced to minimum.

Introduction to Cost Accounting

Cost accounting identifies, defines and measures the various elements of direct and indirect costs which are concerned with producing of goods and services. It also Cost measures the performance of the product, quality and productivity of the product. Direct costs are those costs which can be directly identified to producing goods or services. For example direct material, direct labor etc. Indirect costs are those costs which cannot be directly identified to a particular product such as indirect material and indirect labor etc.

Objectives of Cost Accounting

The following are the main objectives

1) The first objective of cost accounting is to provide both financial and non financial information to management by compiling, analyzing and transmitting data to management.

2) Cost Accounting helps in planning, controlling and can also be used for evaluation purposes.

3) It also measures the sacrifices an organization makes in achieving the organizational goals or objectives.

4) The next objective of cost accounting is to trace all the costs which are relevant to management so that important decisions can be made easily.

5) The next objective of cost accounting is to help management in taking short term decisions by using the technique of marginal costing etc.

Interpretation

After performing their analyses, cost accountants then use their professional judgment to interpret the results of each costing technique as they apply to different aspects of a company's financial analysis. For example, breakeven analysis indicates the capacity at which operations become profitable .Cost accountant’s work with many people in other departments of a company to obtain current information that may account for some of these fluctuations.

Finally, cost accountants collect all costs involved in the process of making goods or providing services and use such cost data for income measurement and inventory valuation. This information also helps management plan and make operational decisions.

Further, cost accountants must provide management with information that may indicate adverse economic conditions when these situations arise, such as reports about poor product quality, cost overruns or abuses of company policies.

Role of Controllers

Cost accountants assemble, classify and summarize financial and economic data on the production and pricing of goods or services. Cost accountants help management by preparing budgets that provide cost estimates of material, labor and technology. Cost accountant monitors theses data and track if any variation occurs between the planned and actual. It also helps management in taking corrective action by providing the data to management at which particular point cost rises or decline.

Due to this reason cost accounting is known as management accounting because managers use accounting data to guide their decisions. Managers use the information produced by cost accounting techniques to direct day-to-day operations and supply feedback to evaluate and control performance.