essay on cost accounting

60 Cost Accounting Essay Topic Ideas & Examples

🏆 best cost accounting topic ideas & essay examples, 🥇 most interesting cost accounting topics to write about, 📌 simple & easy cost accounting essay titles.

• Potato Chip: Basics of Cost & Managerial Accounting Finally, the chips enter the packaging stage the computer weighs the chips using pre-set instructions and directs the machines to fill a formed bag.
• Coca-Cola Company Costs: Managerial and Cost Accounting The Coca-Cola Company is one of the most famous businesses in the world. The company deals with labor, material, and overhead costs that can be further classified into fixed, variable, or mixed ones. We will write a custom essay specifically for you by our professional experts 808 writers online Learn More
• Accounting: John Deere Company’s Manufacturing Costs Analysis of the manufacturing costs of the product will act as a guide for setting the price. The journal entries below are for the cost of manufacturing a single combine harvester.
• Accounting: Absorption Costing and Variable Costing In this regard, absorption costing does not differentiate between variable costs and fixed costs thus cannot be used in Cost Volume Profit analysis; on the other hand, variable costing which does differentiate between variable costs […]
• Current Cost Accounting Practices in Transportation Industry According to Hooper and Murray, private sector players in the transport sector have been keen on lowering the logistics cost as a way of lowering the overall cost of production to remain competitive in the […]
• Cost Accounting for Beer Production To understand the accounting costs that are associated with the production of beer, it will be important to understand the raw materials and other costs that are incurred in the processing departments.
• Integrating Between Material Flow Cost Accounting and Balanced Scorecard An example of such a model for a manufacturing company that combines the integrative approach of MFCA and BSC is shown in Table 1.
• Horngren’s Cost Accounting & Financial Management The first line of the financial plan is devoted to the description of fixed costs. The internet is crucial for the project’s operations as it is assumed that part of the consultations with clients will […]
• Cost Control Policy and Management Accounting The basic principle of calculating the cost is the division of costs into direct and indirect and the attribution of both types of costs to finished products.
• Middleton Made Knives Firm’s Cost Accounting The three main categories of costs in a job cost sheet are direct materials, manufacturing overhead, and direct labor. This section of a job order cost sheet accumulates the costs that are directly related to […]
• Choosing the Best Costing Accounting Method The Chief Financial Officer in the company, which is a milk production firm, known as Milk One Limited, has to decide on whether the company will be using the process costing method or the job […]
• Managerial Accounting vs. Cost Accounting The aim of this is to control expenditure and thus increase costs. Lean accounting is based on the addition of value along the supply chain.
• Cost Accounting: Traditional Method vs. Fair Value Model Despite the fact that the fair value method is a newer, supposedly better method than the traditional model and enjoys the backing of major international accounting trend setters, there are many critics who contend that […]
• Direct and Indirect Production Costs in the Accounting System The lower the cost of producing a product relative to the price customers pays for it, the greater the quantity of a product the company is willing to supply.
• Accounting Costing: Cost-Volume-Profit Technique The contribution margin is the difference between the sales price and the variable cost of the product. Hence Break Even point of out put or units will be = – The total monthly fixed cost […]
• Management and Cost Accounting in Organization This is because a great deviancy shows that the result was not adequate and it needs further research in the five sectors to determine the best pricing strategy for membership fees in the sectors.
• Cordless Hooded Hair Dryer: Accounting Cost Systems and Cost Behavior There are two types of costs involved in the production of the new hairdryer including fixed and variable costs. The selling price of the new hairdryer will be based on the cost-plus-margin strategy.
• Serious Reader Company: Accounting Cost Systems and Behavior The financial statement, which provides details of the company’s sales, costs, expenses, and profit, is the income statement. It could be concluded that businesses prepare different types of the income statement for internal use as […]
• Inventory Management and Cost Accounting Let’s analyze the two options in terms of liquidity, profitability, breakeven point; This is the availability of funds to meet short term and long term financial liabilities as they fall due.
• Cost Accounting and Impact on Product Cost The authors maintained research trying to identify a system that provides the most benefit to the organization and stopped on the utilization of the long-term variable cost.
• Cost Accounting and Financial Health: Cost Reduction Policy Effect in Selected Enterprises of Metallurgy Industry in Uzbekistan
• Cost Accounting and Material Encouragement of Industrial Personnel
• Innovating Cost Accounting Practices in Rail Transport Companies
• What Document Triggers the Beginning of the Cost Accounting?
• Transaction-Based Cost Accounting: The Case of Destin Bras Products Co
• Paradigma Cost Accounting Methods in Production Economics of a Small Entrepreneur
• Control and Cost Accounting Practices in the Spanish Royal Tobacco Factory
• Cost Accounting: Its Role and Ethical Considerations
• Energy Cost Accounting and the Costs of Digestion, Pregnancy, and Lactation
• Fair Value and Cost Accounting, Depreciation Methods, Recognition and Measurement for Fixed Assets
• Lab Budgeting and Cost Accounting Under DRGs
• Why Is Cost Accounting Important for the Success of a Firm?
• Teaching New Customer Service, Cost Accounting, and Management
• Historical Cost Accounting: Advantages and Disadvantages
• Labor Expenditures and Benefit-Cost Accounting in Times of Unemployment
• Cost Accounting and Public Reimbursement Schemes in Spanish Hospitals
• Job Order Cost Accounting Entries for a Service Business
• The Balance Scoreboard and Its Relationship to Cost Accounting
• Cost Accounting Models Used for Price-Setting of Health Services: An International Review
• Inquiry Into the Cultural Impact on Cost Accounting Systems (CAS) in Sri Lanka
• The Interplay Between Cost Accounting Knowledge and Presentation Formats in Cost-Based Decision-Making
• Statistical Cost Accounting Models in Banking: A Reexamination and an Application
• Accounting For Changing Prices: The Value Relevance of Historical Cost, Price Level, and Replacement Cost Accounting in Mexico
• Health Care Economics, Hospital Management, and Cost Accounting
• REVEL for Horngren’s Cost Accounting: A Managerial Emphasis
• Adaptive Cost Accounting Control: Issues in Realizing Deming Synergy
• Cost Accounting Cycle: Contracting Procedures and Cost-Plus Pricing in WWI Industrial Mobilization in Italy
• The Concept and Role of Full-Cost Accounting
• The Benefits and Criticisms of Historical Cost Accounting
• Organizational and Methodological Principles of Cost Accounting in Transitional Period in Organic Crop Production
• Using Cost Accounting Information to Enhance Firm’s Competitive Position and Performance
• What Documents Are Needed for Cost Accounting Clerks?
• The Historical Cost Convention Used in Historical Cost Accounting
• Historical Cost Accounting: Criticisms and Alternatives
• Cost Accounting and Calculation of the Cost of Feed in the Pig Industry
• Corporate Material Flow Management in Thailand: The Way to Material Flow Cost Accounting
• Advance Cost Accounting Course Concepts to Real World
• Cost Accounting, Controlling Labour and the Rise of Conglomerates
• Advantages of German Cost Accounting Software
• Relevant Cost and Revenues Irrelevant Cost Accounting
• Chicago (A-D)
• Chicago (N-B)

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103 Cost Accounting Essay Topic Ideas & Examples

Inside This Article

Are you a student studying cost accounting and struggling to come up with an interesting and unique essay topic? Look no further! In this article, we have compiled 103 cost accounting essay topic ideas and examples that will surely inspire you and help you write an outstanding essay.

• The importance of cost accounting in business decision-making.
• Cost accounting techniques used in determining product pricing.
• The role of cost accounting in budgeting and forecasting.
• The impact of cost accounting on profit maximization.
• The advantages and disadvantages of traditional costing methods.
• Activity-based costing: A modern approach to cost accounting.
• How cost accounting aids in cost control and cost reduction.
• The relationship between cost accounting and managerial accounting.
• The role of cost accounting in performance evaluation and incentive systems.
• The impact of cost accounting on inventory management.
• The use of cost accounting in determining the breakeven point.
• The relevance of cost accounting in the service industry.
• The ethical considerations in cost accounting practices.
• The impact of technology on cost accounting systems.
• The challenges of implementing cost accounting in multinational corporations.
• The role of cost accounting in sustainability reporting.
• The use of cost accounting in the healthcare industry.
• The impact of cost accounting on supply chain management.
• Cost accounting techniques for decision-making in pricing special orders.
• The relationship between cost accounting and lean manufacturing.
• The role of cost accounting in project management.
• The impact of cost accounting on government contracting.
• The use of cost accounting in nonprofit organizations.
• The challenges of cost accounting in the digital age.
• The role of cost accounting in managing product quality.
• The impact of cost accounting on customer profitability analysis.
• Cost accounting techniques for evaluating capital investment projects.
• The relationship between cost accounting and financial accounting.
• The use of cost accounting in the hospitality industry.
• The role of cost accounting in risk management.
• The impact of cost accounting on decision-making in make-or-buy situations.
• The relevance of cost accounting in the food and beverage industry.
• The challenges of implementing cost accounting in the construction industry.
• The role of cost accounting in pricing decisions for service-based businesses.
• The impact of cost accounting on transfer pricing.
• Cost accounting techniques for analyzing variances.
• The relationship between cost accounting and taxation.
• The use of cost accounting in the entertainment industry.
• The role of cost accounting in environmental sustainability.
• The impact of cost accounting on pricing decisions for technology products.
• The relevance of cost accounting in the retail industry.
• The challenges of implementing cost accounting in the e-commerce sector.
• The role of cost accounting in the energy industry.
• The impact of cost accounting on decision-making in the pharmaceutical industry.
• Cost accounting techniques for analyzing customer profitability.
• The relationship between cost accounting and corporate social responsibility.
• The use of cost accounting in the manufacturing industry.
• The role of cost accounting in supply chain sustainability.
• The impact of cost accounting on pricing decisions for luxury goods.
• The relevance of cost accounting in the automotive industry.
• The challenges of implementing cost accounting in the healthcare sector.
• The role of cost accounting in the telecommunications industry.
• The impact of cost accounting on decision-making in the fashion industry.
• Cost accounting techniques for analyzing product profitability.
• The relationship between cost accounting and financial performance measurement.
• The use of cost accounting in the transportation industry.
• The role of cost accounting in sustainable packaging.
• The impact of cost accounting on pricing decisions for agricultural products.
• The relevance of cost accounting in the banking industry.
• The challenges of implementing cost accounting in the software development sector.
• The role of cost accounting in the tourism industry.
• The impact of cost accounting on decision-making in the real estate industry.
• Cost accounting techniques for analyzing customer acquisition costs.
• The relationship between cost accounting and corporate governance.
• The use of cost accounting in the pharmaceutical industry.
• The role of cost accounting in supply chain optimization.
• The impact of cost accounting on pricing decisions for consumer goods.
• The relevance of cost accounting in the education sector.
• The challenges of implementing cost accounting in the renewable energy industry.
• The role of cost accounting in the hospitality industry.
• The impact of cost accounting on decision-making in the gaming industry.
• Cost accounting techniques for analyzing marketing campaign costs.
• The relationship between cost accounting and sustainability reporting.
• The use of cost accounting in the airline industry.
• The role of cost accounting in waste management.
• The impact of cost accounting on pricing decisions for fast-moving consumer goods.
• The relevance of cost accounting in the insurance industry.
• The challenges of implementing cost accounting in the biotechnology sector.
• The role of cost accounting in the sports industry.
• The impact of cost accounting on decision-making in the music industry.
• Cost accounting techniques for analyzing customer retention costs.
• The relationship between cost accounting and corporate social entrepreneurship.
• The use of cost accounting in the logistics industry.
• The role of cost accounting in sustainable agriculture.
• The impact of cost accounting on pricing decisions for electronic products.
• The relevance of cost accounting in the fashion industry.
• The challenges of implementing cost accounting in the healthcare technology sector.
• The role of cost accounting in the food processing industry.
• The impact of cost accounting on decision-making in the film industry.
• Cost accounting techniques for analyzing distribution costs.
• The relationship between cost accounting and sustainability performance measurement.
• The use of cost accounting in the retail banking industry.
• The role of cost accounting in sustainable forestry.
• The impact of cost accounting on pricing decisions for luxury services.
• The relevance of cost accounting in the hospitality technology sector.
• The challenges of implementing cost accounting in the clean energy industry.
• The role of cost accounting in the sports entertainment industry.
• The impact of cost accounting on decision-making in the publishing industry.
• Cost accounting techniques for analyzing customer lifetime value.
• The relationship between cost accounting and sustainable development.
• The use of cost accounting in the e-commerce logistics industry.
• The role of cost accounting in sustainable manufacturing.
• The impact of cost accounting on pricing decisions for sustainable products.

These essay topic ideas and examples cover a wide range of industries and aspects of cost accounting. Choose a topic that aligns with your interests and field of study, and start writing an informative and thought-provoking essay. Good luck!

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Essays on Cost Accounting

Essay on Cost (For Students) | Cost Accounting

Read this essay to learn about:- 1. Meaning of Cost 2. Cost Elements 3. Direct Costs and Indirect Costs 3. Classification.

Essay # 1. Meaning of Cost:

Cost is the sacrifice of resource to achieve an objective. In relation to production, cost is sacrifice of resource to produce goods. Cost is measured in monetary term.

In the production of goods, what are the resources required?

Resources are:

ADVERTISEMENTS:

a) Raw materials

c) Machine hours

d) Management/Administration

e) Marketing.

In cost management terms these resources are identified by elements, by functions or by variability.

Essay # 2. Cost Elements:

List of Cost Elements:

1. Salary of research staff

2. Expenses of research lab

3. Expenses of design engineering department

4. Raw materials

6. Power and fuel

7. Factory building

8. Factory machinery

9. Administrative building

10. Administrative equipment

11. Delivery van

12. Purchasing expenses

13. Material handling

14. Labour welfare

15. Expenses of accounting department

16. Stationery, postage

17. Watch and ward

18. Factory superintendent’s salary

19. Managing director’s salary

20. Legal charges

21. Audit fees

22. Salesmen’s commission

23. Delivery expenses

24. Advertisement

25. Depreciation of factory building

26. Software and hardware expenses

27. Output royalty (paid per unit of production)

28. Warranty expenses

29. Items mentioned above are cost elements of a manufacturing company.

Understanding Value Chain:

Value chain is defined as a sequence of business functions in which utility is added to the products or services.

Understand the value chain of a manufacturing business:

Each step in the value chain can be sub-classified.

Study the value chain of three different farms: Crop farming, Dairy farming and Beef Cattle Farming:

Observe these steps reflects:

(i) Sourcing raw materials,

(ii) Shipping to process centres,

(iii) Processing, and

(iv) Distribution.

Costs are incurred for each steps in the value chain. We have so far identified such costs by elements. Should we now re-classify these costs by functions?

Then what functions do you learn from the value chain?

Business Functions:

Research & Development:

Dr. Reddy’s Lab carries out research for new pharmaceutical products. Tata Motors carries out research for passen­ger cars.

A division of Tata Motors designs various types of passenger cars.

Production:

This division manufactures car.

Marketing & Distribution:

This division markets the product and distributes cars.

Administration:

Engaged in overall management.

After Sale Service:

This may be carried out through franchise shops.

Functional Classification of Costs:    

Cost accounting is a managerial accounting process that involves recording, analyzing, and reporting a company's costs. Cost accounting is an internal process used only by a company to identify ways to reduce spending.

Cost accounting is helpful because it can identify where a company is spending its money, how much it earns, and where money is being wasted or lost.

Key Takeaways

• Cost accounting is the reporting and analysis of a company's cost structure.
• Cost accounting involves assigning costs to cost objects that can include a company's products, services, and any business activities.
• Cost accounting is helpful because it can identify where a company is spending its money, how much it earns, and where money is being lost.
• Having a clear idea of the costs associated with running a business makes it easier for management to boost profitability.
• Cost accounting is distinct and separate from general financial accounting, which is designed for outside audiences and heavily regulated.

Even though cost accounting is commonly called a costing method, the scope of cost accounting is far broader than mere cost. Costing methods determine costs, while cost accounting is an analysis of the different types of costs a company incurs.

Cost accounting has elements of traditional bookkeeping, system development, creating measurable information, and input analysis. For many firms, cost accounting helps create and measure business strategy in a more organic way.

Having a clear idea of the costs associated with running a business essentially makes it easier for management to devise ways to maximize productivity and profitability. Entrepreneurs and business managers rely on actionable information before making allocation decisions. Cost accounting buoys decision-making because it can be tailored to the specific needs of each separate firm.

Modern methods of cost accounting first emerged in the manufacturing industries, though its advantages helped it spread quickly to other sectors.

How Cost Accounting Is Used

Cost accounting can be applied to many areas of a business. Here are some examples of how it is used.

Cost Controls

Cost accounting is used to help with cost controls. Firms want to be able to spend less on their inputs and charge more for their outputs. Cost accounting can be used to identify inefficiencies and apply the necessary improvements needed to control costs. These controls can include budgetary controls, standard costing, and inventory management .

Internal Costs 

Cost accounting can help with internal costs, such as transfer prices for companies that transfer goods and services between divisions and subsidiaries. For example, a parent company overseas might be the supplier for its U.S. subsidiary, meaning the U.S. company would be charged by the parent for any purchases of materials.

Expansion Plans

Companies looking to expand their product line need to understand their cost structure. Cost accounting helps management plan for future capital expenditures , which are large plant and equipment purchases.

Preparing Financial Statements

Cost accounting can contribute to preparing required financial statements, an area otherwise reserved for financial accounting. The prices and information developed and studied through cost accounting will likely make it easier to gather information for financial accounting purposes. For example, raw material costs and inventory prices are shared between both accounting methods .

Types of Costs in Cost Accounting

Businesses can incur many types of costs depending on their industry. Here are a few of the most common costs involved in cost accounting.

Direct Costs

A direct cost is a cost directly tied to a product's production and typically includes direct materials, labor, and distribution costs. Inventory, raw materials, and employee wages for factory workers are all examples of direct costs.

Indirect Costs

Indirect costs can't be directly tied to the production of a product and might include the electricity for a factory.

Variable Costs

Costs that increase or decrease with production volumes tend to be classified as variable costs . A company that produces cars might have the steel involved in production as a variable cost.

Fixed Costs

Fixed costs are the costs that keep a company running and don't fluctuate with sales and production volumes. A factory building or equipment lease would be classified as fixed costs.

Operating Costs

Operating costs  are the costs to run the day-to-day operations of the company. However, operating costs—or operating expenses—are not usually traced back to the manufactured product and can be fixed or variable.

Cost Accounting vs. Financial Accounting

Financial and cost accounting systems can be differentiated based on their target audiences. Financial accounting is designed to help those who don't have access to inside business information, such as shareholders, lenders, and regulators. For example, retail investors who analyze financial statements benefit from a company's financial accounting.

Alternatively, cost accounting is meant for those inside the organization responsible for making critical decisions. Unlike financial accounting for publicly traded firms, there is no legal requirement for cost accounting.

Cost accounting is distinct and separate from general financial accounting, which is regulated by the Securities and Exchange Commission and the Financial Industry Regulatory Authority and is critical for creating financial statements.

What Are the Advantages of Cost Accounting?

Cost accounting is helpful because it allows executive management of companies to understand how to use their resources more effectively by tracking and measuring them and studying their effects.

What Is the Main Difference Between Cost Accounting and Financial Accounting?

Cost accounting is for inside use. It helps company management to make decisions and is tailored to the specific needs of each separate firm. This differs from financial accounting, which must follow a set template and is used to inform people outside the company, such as investors, about its financial performance.

What Are the 4 Types of Cost Accounting?

There are various forms of cost accounting. They include:

• Standard cost accounting
• Activity-based cost accounting
• Marginal cost accounting
• Lean accounting

Keeping on top of costs is essential for businesses. The objective is to maximize profitability; achieving that goal depends greatly on managing costs.

That’s essentially what cost accounting is designed to do. It helps managers and employees keep track of the costs associated with running the business, which is information that makes it easier to boost efficiency and profitability.

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• Essay on Cost

Sample Essay On Cost Accounting

Type of paper: Essay

Topic: Cost , Accounting , Business , Cost Accounting , Company , Management , Products , Costs

Words: 2500

Published: 05/23/2023

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Two distinct set of financial reports are used in managing a company, one made by Financial Accountants and the other by Managerial Accountants. These reports are aimed at the company’s external stakeholders such as investors and creditors and are prepared for each quarter and at the end of the financial year and. The format and content of these reports are laid down in laws such as the SOX (Sarbanes- Oxley) Act and in accounting regulations such as the GAAP (Generally Accepted Accounting Principles) and the IFRS (International Financial Reporting Standards). Financial reports become comparable across companies. Managerial accounting reports are prepared for the company managers to help them in their day-to-day decision making. These reports have no prescribed format or periodicity. They are tailored to needs of each manager and would differ by function – a sales manager’s report would be different from that for a manufacturing manager. These reports contain data both for the past period and predictions for the future period. Both types of reports depend on the data and analysis provided by the Cost Accounting function as shown in Fig 1 (from D Con e-books, n.d.). As author W.B Lawrence has pointed out in his paper Teaching Cost Accounting, the three principles that cost accounting has contributed to the science of accounting are the use of departmental accounts, expenses appearing as changes in sets of values and the operating statement being used to manage business (Lawrence, 2002). This paper examines why cost accounting is so important to the success of the firm and how various methods of cost accounting are used to ensure business success.

Why Cost Accounting is Important to a Firm’s Success

Any commercial firm exists to make a profit for its owners, the shareholders. Company managers incur costs on materials, labor and overheads to produce a product that the company can sell to generate revenues. The company also needs land, buildings, plant and machinery and utilities and each of these has a cost. The product also requires spending on R&D and marketing. The selling price of the product has to be fixed such that the company generates a profit after meeting all of these costs, but must remain in the range of its competitors. The cost accounting system provides managers with an accurate picture of each of these elements of cost so that they can apply their minds to minimizing the product costs and maximizing profits for the owners. For example, cost accounting information help managers decide on issues such as making a component in-house or buying it, investing in R&D to develop cheaper or better products, expanding the factory or outsourcing part of the manufacturing or investing in automation to lower wage costs. Each of these decisions impacts costs and profits and relies on data from the cost accounting system (Kwan, 2011). As Prof. Charles Horngren puts it in his celebrated textbook Cost Accounting - A Managerial Emphasis, “All businesses are concerned about revenues and costs. Whether their products are automobiles, fast food or the latest designer fashions, managers must understand how revenues and costs behave or risk losing control” (Horngren, et al, 2012). Companies now operate in a global environment where they can not only sell their products worldwide but also source raw materials and components from all around the world. This statement is dramatically illustrated in Fig 2 which shows the global sources for Apple’s iPhone (Hessman, 2014). Demand uncertainty – Many firms face the problem of uncertain demand for their products or services. Managers are faced with the problem of balancing the sunk cost of idle capacity against the higher cost of procuring resources at short notice and depend upon cost accounting signals to make the right decision (Krishnan, 2015) Cost structure – Companies with a higher proportion of fixed costs are exposed to the risk of incurring losses when there is a demand downturn. Managers therefore aim for increased cost elasticity through outsourcing, use of leased equipment and contract labor. The cost accounting system provides the signals for managers to think in these terms (Krishnan, 2015). Cost asymmetry – Various studies have shown that certain elements of cost that go up with increasing volumes do not come down in the same proportion when volumes go down. This phenomenon has been labeled “cost stickiness”. The cost accounting system provides indicators of such sticky costs that help the managers to devise solutions to improve earnings in periods of downturn (Krishnan, 2015). One major role an effective cost accounting system can play is in the motivation of managers. The Expectancy Theory of Motivation by Edward Tolman and Victor Vroom says is illustrated by Fig 3 below (from Redmond & Nemati, 2016). The cost accounting system in a company can help in showcasing improvements that result from managerial efforts to his bosses and peers and this recognition can be a great source of motivation.

Methods of Cost Accounting and Their Use

The methods of cost accounting in use in companies has been undergoing change in response to the new demands in the past decade of global competition and increasing use of technology. This evolution is shown in Fig 4 (from Sharaf-Addin, et al, 2014). The traditional cost accounting techniques of Standard Costing, Absorption Costing and Marginal Costing (Stage 1 in Fig 4) still form the foundation of most cost accounting systems. The Standard Costing system lays down each year the standard cost for each cost element. Actual costs incurred in each period are compared with the Standard Cost and variances are analyzed to determine corrective actions. In Absorption Costing, all costs, whether fixed or variable, are treated as product costs and the selling price of the product is fixed using the absorption cost. In Marginal Costing, the fixed and variable costs are presented separately. This method is useful for short-term decisions such as make-or-buy, accepting a special order or dropping a product line (Tabitha & Ogungbade, 2016). Some of the limitations of traditional cost accounting systems were sought to be overcome by the development of some new methods. One major advance in the mid-1980s was the concept of Activity Based Costing (ABC) for the allocation of overheads. The ABC method identifies various cost pools. For example, in a machine shop, machine set-up time could be identified as a separate cost pool from actual machining time. Components that are produced in small batch quantities would require larger machine set-up time and would therefore bear greater cost allocation than components that are machined in large batch quantities. ABC was not used just for cost allocation but as a tool to focus the managers’ attention on activities that did not add value to the product or process and was part of the larger movement towards value engineering in all aspects of a company’s operations (Stage 2 in Fig 4). Most manufacturing companies around the world use the Standard Costing system include its variants of Job Costing (in custom made products, where each job is costed individually rather than over a period) and Process Costing (where manufacturing is a conversion process such as in the chemical industry). Some have adopted ABC for allocation of overheads. In a study of manufacturing companies in Istanbul, Turkey, 31 firms used Job Costing, 7 companies mainly in the chemicals and plastics industry used Process Costing. 19 companies used ABC. Smaller companies tend to adopt simpler systems to avoid complexity and cost (Uyar, 2010). The Target Costing approach was developed in the Japanese manufacturing industry in the 1970s as a multidisciplinary approach to search for lower costs from the earliest stages of product design and through techniques such as process-reengineering and total quality management (TQM). The cost target was set as the competitive market price less the desired profit margin and the company managers were set the goal of developing a product and manufacturing it within the set cost target. This approach was quickly adopted by the services industry. Target costing also spawned the concept of Life Cycle costing where the focus was not just on ex-factory cost of the product but also costs of spares and service during the customer’s ownership of the product and the costs of disposal at the end of the product life. Another concept that was developed was Throughput Accounting where the focus was on maximizing throughput through a factory or a functional team in the company by improving throughput and thereby lowering costs (Tabitha & Ogungbade, 2016). This is represented as Stage 3 in Fig 4 above. The Japanese concept of Kaizen which means continuous improvement became widely popular in all parts of the world. Kaizen techniques were useful in raising overall productivity and improving business performance. In the Target Cost method, if the target cost is met there is no further incentive for the managers to continue efforts to achieve further savings. The Kaizen cost approach changes that mindset and it is possible for an organization to set itself goals for continuous small improvements. Companies therefore set Target Costs for new products and once these are in production and in the market, and adopt Kaizen costing goals for continuous small improvements. This is shown as Stage 4 in Fig 4 above. One criticism of all cost accounting systems is that they only report on the past and do not provide any help to the managers in dealing with the future. The concept of Predictive Cost Accounting seeks to address that criticism. A conceptual diagram is shown in Fig 5 (from Cokins, 2015). In this approach, data from actual past performance is combined with information such as forecasts and planned changes in products, processes and sourcing to provide a decision support system. The Predictive Cost system will new the emerging field of data analytics and the quality of the system would evolve over time with experience of applying these and evaluating the outcomes (Cokins, 2015).

Summary and Conclusions

Companies generate Financial Accounting Reports for its external stakeholders and Managerial Accounting Reports for its managers, both using data collected and analyzed by the cost accounting function. Cost accounting reports tailored to the needs of specific functional roles helps company managers fulfill their assigned task of maximizing profits for the company shareholders. The cost accounting system helps managers with key decisions such as the price of a product, whether to make a component in-house or to buy it, whether to spend money on R&D or marketing and whether to expand factory capacity. Globalization where the company’s products can source raw materials and components from anywhere in the world and sell its products in any country add to the need for managers to be supported by reliable information. For many companies the demand for their products can fluctuate which requires managers to make important decisions related to capacity expansion, building cost elasticity through reduction of fixed costs and taking steps to ensure that variable costs go down in proportion to the production volumes. All these decisions have to be based on reliable cost accounting information. The cost accounting system is also an important tool in manager motivation. Cost accounting systems originated with Standard Cost systems and Activity Based Cost systems that collect and analyze historical costs. Over 80% of companies worldwide, especially the smaller companies continue to rely on historical cost systems. Newer cost accounting systems have emerged. The Target Cost Accounting system sets a target cost for a new product or activity and the Kaizen Cost Accounting system aims to make continuous small improvements to save on costs. The new approach of Predictive Cost Accounting is expected to gain acceptance using the emerging field of data analytics.

Cokins, G., (2015). “Management Accounting- Helping Accountants grow the Beans”, Host Analytics, Sept 23, 2015. Retrieved on Jan 18, 2017 from <<http://blog.hostanalytics.com/management-accounting-helping-accountants-grow-the-beans>> D Con e-Book, (n.d.). “Comparison of Management Accounting and Financial Accounting”, D Con e-Books.com. Retrieved on Jan 17, 2017 from <<http://dconebook.weebly.com/financial-accounting-vs-management-accounting.html>> Hessman, T., (2014). “How to build an iPhone: Apple’s tangled Manufacturing Web”, Industry Week, Sept 26, 2014. Retrieved on Jan 16, 2017 from <<http://www.industryweek.com/technology/how-build-iphone-apples-tangled-manufacturing-web#slide-2-field_images-149321>> Horngren, C.T., Datar, S.M. and Rajan, M.V., (2012). “Cost Accounting – A Managerial Emphasis”, 14th Edition, Prentice Hall, 2012. Retrieved on Jan 16, 2017 from <<http://www.turboteamhu.com/wp-content/uploads/2015/10/cost-accounting-a-managerial-emphasis-14ed-horengren1.pdf>> Krishnan, R., (2015). “Management Accountant – What ails thee?” Journal of Management Accounting Research, Vol. 27, No.1, 2015, pp 177-191. Retrieved on Jan 17, 2017 from <<http://aaajournals.org/doi/pdf/10.2308/jmar-10461?code=aaan-site>> Kwan, L.H., (2011). “Competing Globally with Cost Accounting”, Tennessee Research and Creative Exchange, University of Tennessee, Knoxville, 2011. Retrieved on Jan 16, 2017 from <<http://trace.tennessee.edu/cgi/viewcontent.cgi? article=2417&context =utk_chanhonoproj>> Lawrence, W.B., (2002). “Teaching Cost Accounting”, The Accounting Exchange, EBSCO Publishing, 2002. Retrieved from the Ashford Online Library. Redmond, B.F. and Nemati, S.K., (2016). “Expectancy Theory”, Confluence, Sept 17, 2016. Retrieved on Jan 16, 2017 from <<https://wikispaces.psu.edu/display/PSYCH484/4.+Expectancy+Theory>> Sharaf-Addin, H.H., Omar, N. and Sulaiman, S., (2014). “Target Costing Evolution: A Review of the Literature from IFAC’s (1998) Perspective Model”, Asian Social Science, April 2014. Retrieved on Jan 18, 2017 from <<https://www.researchgate.net/figure/ 272692528_fig3_Figure-3-The-evolution-of-cost-control-system>> Tabitha, N. and Ogungbade, O.I., (2016). “ Cost Accounting Techniques adopted by Manufacturing and Service Industry within the Last Decade”, International Journal of Advances in Management and Economics, Vol.5, Issue 1, Jan-Feb 2016, pp 48-61. Retrieved on Jan 16, 2017 from <<www.managementjournal.info/download1.php?f=0605012016IJAMEE.pdf>> Uyar, A., (2010). “Cost and Management Accounting Practices: A Survey of Manufacturing Companies”, Eurasian Journal of Business and Economics 2010, 3(6), 113-125. Retrieved from the Ashford Online Library.

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Cost Accounting: The Case Study Analysis

Analysis of the results.

The pricing of any commodity takes into consideration several factors if indeed any gains are to be realized from that commodity. For instance, the charging of prices in food related products; several costs need to be taken into consideration. The process of production of ready-made food involves many processes from the initial purchase of the ingredients used in the preparation of food. The costs are either direct or indirect costs. Direct costs are those costs are those that can be apportioned to specific units while indirect costs cannot be apportioned to specific units. The costs incurred are also classified either in the form of fixed and in variable costs. The fixed costs in a hotel are in the form of rent, manager’s salaries among others. The location of a hotel will determine how much costs to be apportioned to the specific units.

The efficiency of production machines or equipment is viewed form cost-effective perspective. That is how the plants are capable of producing the required goods at the most possible minimal costs. The manager can use the cost of left over materials to assess the efficiency of a machine. An efficient machine or plant yields minimal or no leftovers since all the raw materials fed to the plant give out the expected output. If it happens that the cost of leftovers reflect a larger percentage of the raw materials consumed, this is a clear indicator of inefficiency of the machine or plant. Too much cost of left overs reflects that the company is incurring huge losses and its performance is likely to be affected.

The division controller of any organization is vested with the overall responsibility of ensuring that there is enough inventory and total cost controls in the section. That means he should be aware of all the cost aspects in the organization and develop a mechanism that will see that all the costs are adequately accounted for. The costs of products left in the inventory may be determined through taking the total number of units and multiplying them by the price per unit cost. However, the units may be having different prices and the different units left will be obtained by referring to stock taking records maintained for example Last in First out (LIFO), First In First Out (FIFO) or any other preferred method to get precise prices for the number of inventories left.

Sometimes it is essential that the future expenditures be planned presently. In the context in question, the maintenance department wants to plan the expenditures for the coming year. In managerial economics, the anticipated expenditures can be based on the organization’s cost history. The manager may also incorporate some aspects that may affect the anticipated expenditures for instance the unforeseen economic downturns like inflation may lead to increased expenditures in the anticipated year. The manager also has to consider other factors such as the expansion that may be anticipated by the firm. This may lead to increased costs on the part of the firm. The managerial accounting provides that the manager should be aware and able to anticipate costs that are likely to be incurred by the firm.

Calculations:

• Manufacturing margin as a percentage of sales for each salesperson:

Borland = (78,000/130,000) × 100 =60%

Chow = (60,000/150,000) × 100 = 40%

Juarez = (56,000/140,000) × 100 = 40%

Morion = (40,000/100,000) × 100 = 40%

• Contribution margin (CM) ratio for each sales person:

CM ratio = (Contribution margin/Sales) × 100, therefore;

Borland = (32,500/130,000) × 100 = 25%

Chow = (15,000/150,000) × 100 = 10%

Juarez = (14,000/140,000) × 100 = 10%

Morion = (10,000/100,000) × 100 =10%

Manufacturing margin is a measure of manufacturing capability of the company and efficiency during the production of goods. This is attributed to several factors for instance the skilled and experienced labor force of the company, use of more advanced machines in the production of goods and services among others. In the provided case study, the situation is different since we are examining three different sales people operating in the same company. Each sales person has a duty to contribute to the company through sales efforts. The efficiency of each sales person can be assessed in terms of manufacturing margin. In managerial accounting, the higher the manufacturing margin the more efficiency is the manufacturing firm and in the above context the person with the highest manufacturing margin is the person with substantial contribution to the company. Sales figures cannot be used to judge the efficiency of a person. For instance in the above calculations, though Chow has the highest sales figures, Borland is more efficiency since his manufacturing margin is the highest of all.

Contribution margin is the amount that remains after deducting variable expenses from the total revenue. The contribution margin is supposed to cover fixed costs and provide profits for the firm in a given period. In the event that an organization is unable to cover its fixed costs using the contribution margin, then losses are incurred. The CM ratio is considered useful in managerial accounting as it shows the effect that will be observed in contribution margin after a change in total sales. For instance, having a CM of 10 percent means that for every dollar increase in sales, the contribution will go up by 10 cents. The organization’s profits will also increase by 10 percent assuming fixed costs are constant. In the above analysis, it is evident that Borland had the highest contribution and therefore he makes a substantial contribution than other sales people. If the company is considering getting rid of some sales people, Borland should be retained since a given increase in sales will bring about a significant increase in the company’s profits. The analysis also shows there is a strong relationship between the manufacturing margin and contribution margin. A high manufacturing margin signifies a contribution margin.

In every organization, profit maximization and cost minimization is the contribution of all the organizations departments/divisions. This is only achieved if there is maximum cooperation of all the divisional heads involved. In the provided case study, a scenario arises that involves the divisional heads of the same organization, Michael of the PC Division and Lynn Williams of Semiconductor Division. The two associates of the same organization seem to be differing concerning the supply of some crucial raw materials required in the company. Firstly, Lynn is frustrated for not meeting the annual target and he is still looking for an alternative on how he can compensate for the same. He usually makes 100 percent of the Semiconductors sales to the external customers but now, he has only managed 80 percent and he is looking for alternatives on how to compensate for the remaining 20 percent. Despite the fact that the same raw materials are needed in the same organization and there is demand for the materials, there seem to be no solution to the problem. His counterpart’s behavior is so unethical since after realizing that Lynn has not met the target, he approaches him and requests Lynn to supply the materials at a price that is below the market price.

Assuming that Michael had to order the materials from an external supplier, he could have parted with $250 for 100 Semiconductors since this is the prevailing market price. Instead, he is requesting for price break from the Semiconductor division while fully aware that all the divisions are operating under very strict profit responsibility. This amounts to lack of cooperation amongst the key heads of an organization and it is as if Michael wants the other colleague’s division to fall. It is quite interesting that Michael opts to order the materials from outside where he is likely to incur other unnecessary costs like transportation costs that could have been saved if the materials were to be obtained from his own organization. Lynn’s reaction is a realistic one. He does not want to sell the raw materials below the market price since it will be against company’s policies. Even if it were not against company’s policies, this would not be possible since he will be answerable to any losses incurred because of his actions. Lynn is kind and fair enough to explain to his colleague and give him enough reasons why it is impossible to sell the materials at that price.

No organization can achieve its set goals without full cooperation of its departmental heads. This is because each department depends on one another either directly or indirectly to achieve its targets. For example, the sales and marketing department communicates with production department to ensure what is being required in the market is sufficiently produced. If production department produces poor quality products then it will amount to total failure to the sales and marketing division. In the event that some departments are relying on others for the supply of some required materials, they should not seek favor in the name of they are operating in the same organization. This is because some departments may fail to meet their targets if they decide to favor other departments in the same organization simply because they are within the same operating entity. If it is the issue of buying price, there should be nothing like price break to be requested since from an economic point of view price breaks are offered when a particular buyer buys goods in large quantities and it should not be an excuse for any buyer claiming he/she should be given exemptions.

Successful and well performing organizations have their employees or management staff who are willing to assist each other in solving any problem that arises in the organization. It is important for them to realize they are the part of their organization’s success and their efforts are very crucial as far as the existence of an organization is concerned. Lack of cooperation and unwillingness to help each other may affect the organization and it may be hard for it to achieve its goals and objectives. Therefore, it is imperative that the management staff possess excellent ethical behavior in addition to their competences.

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