• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Cost Accounting: Its role and ethical considerations

Extracts from this document...

Introduction

Cost Accounting: Its role and ethical consideration 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. ...read more.

Middle

standards and a commitment to the proper reporting and disclosure of financial information needs to be constantly reinforced within the area of accounting. Absorption and Variable Costing: Absorption Costing: All costs (fixed and variable) of production are product costs. Which means under absorption costing, both variable and fixed manufacturing costs are included as a part of the cost of the product manufactured. Variable Costing: Only those costs of production that vary directly with activity (variable costs) are treated as product costs. Under variable costing, only the variable manufacturing costs are included as a part of the cost of the product manufactured. The fixed manufacturing costs are treated as an expense of the period in which they are incurred. Cost classification under absorption and variable costing: Absorption Costing Variable Costing Product Cost: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Product Cost: Direct materials Direct labor Variable manufacturing overhead Period Costs Selling and administrative costs Period Costs Fixed manufacturing overhead Selling and administrative costs The basic difference between absorption and variable costing relates to the handling of fixed manufacturing overhead. ...read more.

Conclusion

Supporters of variable costing believe that fixed manufacturing costs are not really the cost of any particular unit of product. If a unit is made or not, the total fixed manufacturing costs will be exactly the same. These fixed costs are incurred to have the capacity to make products during a particular period and should be charged against that period as period costs according to the matching principle. Conclusion: Cost accounting 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. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Accounting & Finance essays

  1. Unit 5 Introduction to Accounting

    * There is a problem of continuity if the sole trader retires or dies The reasons for being a sole trader are often a balance between business and personal costs and benefits. Many will prefer the satisfaction of running a business with little paper work against the risks, pressure and probably long working hours.

  2. Costs, Profits and Break-even Analysis.

    static * the analysis takes no account of economies of scale Examiners might also ask you to: * comment on how useful a break-even chart is * make an assessment of whether the firm should/should not produce or continue to produce * move into a dynamic situation, where values are

  1. International Accounting Standarts

    transportation ship ran aground because of civil wars on the coast of Colombia ). 3. Differences in Formal Prescriptions and Content Since historical background and basic intention of the two standards differ, formal prescriptions and content differ too. The following paragraph is going to name the specific differences in formal appearance and style of balancing.

  2. Harmonisation of accounting standards in Europe

    This objective might once have been thought to be too ambitious in one respect and not ambitious enough in another. Until recently, to attempt worldwide harmonisation seemed hopeless and unnecessary. However due to the huge impact of globalisation and new technology, harmonisation plays more and more an important role for many European countries and represents a reasonable objective.

  1. The role of a conceptual framework

    , "...is to provide guidance to accountancies in their day to day work for various transactions and items", and to "..give an underlying theoretical basis for tackling accounting problems", (Higson, A. (1995) Is stewardship merely a comfort blanket?, Vol. 116, Iss 1227; pg.104, 1 pgs).The purpose which was mentioned earlier is correct because it does provide guidance to accountants.

  2. 'Historic cost accounting is the worst possible accounting convention, until one considers the alternatives.'

    As Elliot (1986) states: An implicit and troublesome assumption in the historical cost model is that the monetary unit is fixed and constant over time. However, there are three components of the modern economy that make this assumption less

  1. Auditing is becoming an increasingly expensive part of the management of health care. ...

    Strengthening the Audit Framework Following the scandals involving Robert Maxwell, Polypeck and the BICC bank there has been an increased regulatory framework governing the financial performance and reporting of organisations. The reviews and reports, such as Cadbury, Greenbury, Hempel and Turnbull are now familiar to companies quoted on the stock exchange and increasingly other organisations, including the public sector.

  2. What does Finance involve.

    Now that I know I have to raise �17,000 (�16619.61: put in a whole number) in order to finance the start of my business. There are some options available to me these options are borrow form a bank, go into partnership, sell shares, sell or rent out the flat above my shop or re-mortgage my flat.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work