Responsible accounting is the ability to conduct business in a way that is not harmful and which positively benefits as many people as possible and themselves.

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Responsible accounting


Robert Burton

Responsible accounting is the ability to conduct business in a way that is not harmful and which positively benefits as many people as possible and themselves. Although this sounds simple, it is easier said than done! As there will always be a conflict of interest between various groups of people. Any decisions made by businesses need to be made with an informed awareness of the specific situation and then act according to some sort of accounting standard. If you adhere to those standards you will become an responsible account, but doing the right thing is not as straightforward as explained in many accounting books. Most accounting dilemmas in the workplace are not simply a matter of Should she steal from him? or Should he lie to his boss? Businesses cannot function without accounts being responsible. GAAP dictates a set of rules and conformities to allow all businesses strive after common goals it means that these goals can only be achieved on the basis of standards. Businesses in general are working on the basis of an ethics that settles different interests. The standards within companies can be characterized as mutual respect. In this respect it is in everyone's interest, and is considering people as an end in themselves, not as a means. This responsibility is passed down and filtered to a group of accounts who maintain the companies finances. Many people say there's always a right thing to do based on responsibly accounting, and others believe the right thing to do depends on the situation, ultimately it's up to the individual on what they do and on what they believe to be the

right thing is. Accounts say that new ethical beliefs are state of the art legal matters, and that what becomes an ethical issue of today is then later made into a law. Values that say how we should behave are said to be moral values, values such as respect, honesty, fairness, responsibility. The concept of responsible accounting has been seen to mean various things to different people, but usually it's knowing what is right or wrong in the workplace and doing what's right in regard to products, services and the company's bottom line. A focal point on responsible accounting in the workplace shows and alerts leaders and staff on how they should act. An attention to these practices in the workplaces helps ensure that when leaders and managers are struggling in times of crises and confusion, they retain a strong moral focus. However, attention to accounting ethics provides numerous other benefits, as well. For many people, believe these principles can go right out the door during times of stress. Business ethics can be a strong preventative medicine during those times. Ethics codes are often drawn up in response to scandals and to protect the name of the company, and then this only state its legal responsibilities and the conduct it expects from its employees, rather than listing any ethical principals and aspirations that it holds. The emphasis has often been on the company setting standards for the employees to meet, so it will not be caught breaking the law, rather than realizing that the company itself needs to be guided in its business conduct. In closing there are accounting standards on how to administer a companies accounting record, there are company polices on how the records need to be kept, but in the end responsible accounting is up to the individual and their own moral standards.

Cost allocation ism located and used in the cost accounting system. Cost

allocation is the core of the cost accounting system. The main definition of cost

allocation is the tracing and reassigning costs to one or more cost objectives, such as

activities, process, departments, customers, or products (1). There are several

different terms for cost allocation such as absorb, apply, allocate, attribute, etc. (1).

When you allocate cost you will use cost drivers and a cost pool. It is also based on

cost behavior (2).

There are three types of allocation processes; allocation type one is to allocate

to organizational units which direct costs are physically traced back to the unit, the

costs of resources are jointly used by more than one unit then are allocated based on

the cost driver activity units. Examples of this are rent on departments based on

floor space occupied. So what it is saying that if your company rents out a

warehouse and does not need to use all the warehouse then the part of the unit being

used will be allocated. Allocation type two is to allocate costs form one

organizational unit to another unit when one unit provides products or services to

the other unit, which then the costs are transferred along with the product and

services. Some examples of this are the personal department and laundry

department in the hospital.

So if the hospital uses the personal department to service the laundry department

those cost that occur will then be allocated between the both departments.

Allocation type three is which costs allocated to activities, products, services or

customers, which is also costs allocated to each organizational unit in type one and

type two. The example for this type is that a CPA firm tax department allocates its

costs to the clients. So, if you get your taxes done by a CPA firm then the amount

that you are charged will have some of the allocated costs added into it (1).

There are two most popular methods for allocating departments cost which

are: direct method and the step-down method. The direct method is when the cost

allocation ignores all the other service departments costs to the revenue-production

or operating departments. The other method that is used is the step-down method,

this method recognizes that some departments support other departments activities.

Cost allocation has been carried further to the final cost objects. There are

two major final cost objectives that are used; they are the traditional approach and

the activity-based-costing approach or the ABC. The traditional approach uses

three steps in allocating costs; to allocate production costs, select one or more cost

drivers, and finally allocate or apply the total cost accumulated to the products or

services. The activity-based-costing approach or ABC is to focus the accumulating

costs into activities.

Between these two objectives the accuracy of ABC systems is greater then the

traditional costing system since choosing cost drivers have the cause and effect


With cost allocation and reporting, there are two ways to report the

information that you have acquired. The first is internal reporting this way allows

the companys' staff and board of directors, stockholders, accountants, etc., to see

how the company is producing its' product or service. This way allows the

managers to make the decisions on how to keep the company in business. Internal

reporting also shows services to aid resources and energies to (3). The second way

is to report external. This way goes to the federal government and IRS and the

state. When externally reporting, you will have to go by the GAAP requirements for

the allocation. You need to have the information right when these papers go to

either make the company or brake the company with taxes. Both of these way are

very important, and they are both needed for the corporation, no matter if the

company is a nonprofit or for profit corporation. The company will report the cost

allocation on the annual financial statements.

Most people will wonder why I pick this topic for my term paper. Well I

would like to get into the cost accounting aspects of a corporation and knowing and

understanding the cost allocation is the main focus of the job description. I did not

know to much about the topic before I started this paper, now I kind of understand

a little better and not so much in the dark about it.

Process Costing

Managerial accounting provides managers with the information necessary to facilitate their decision-making, to motivate their actions and behavior in desirable direction, and to promote the efficiency of the organization. It assists managers in carrying out their planning, controlling, and decision-making responsibilities by showing them what kind of information is needed, where this information can be obtained, and how this information can be used. By using management accounting techniques, such as, process costing and cost allocation, managers must consider ways in which accounting information may be accumulated, analyzed and presented in relation to specific problems, decisions and day-to-day tasks of business management (Slagmulder, 1999).

Process costing is a method of cost accounting applied to production carried out by a series of chemical or operational stages or processes. Its characteristics are that costs are accumulated for the whole production process and that average unit costs of production are computed at each stage. Special rules are applied in process costing to the valuation of work in progress, normal losses, and abnormal losses. In process costing it is usual to distinguish between the main product of the process, by-products, and joint products (Oxford dictionary, 1999). Process costing is used when identical goods or services are mass- produced or produced in a continuous flow. For example, the television sets that Sony sells to K-Mart are the same as the television sets sold to Wal-Mart or Target. Similarly, the gallon of gas that BP sells to one person is the same as the gallon that BP sells to another person. These are typically assembly-line operations. Because the products are all the same, then the costs for every product is the same. If the cost of each product is the same, then there is no reason to incur the expense and paper work necessary to keep track of how much each order costs to produce. Under process costing, instead of keeping track of the cost of each order separately, one calculates the average cost of all the items that were produced during the period in question. For example, if Sony makes 300,000 television sets at a cost of $6,000,000, then each television costs $20. An added complication to process costing is the different manner in which costs can be added during the production process. This complication comes into play when there are partially completed goods (Constas,2002).

The primary objectives are to calculate the product unit cost for goods completed during the period and those remaining in inventories at the end of the period and to promote efficient use of resources. When calculated averages, you have to convert partially completed units into completed units with the equivalent amount of work. This is called calculating "Equivalent Units". For example, six half completed units are the equivalent of three full units. A process cost system typically has these characteristics: 1.) Costs are accumulated according to cost center, usually a department or work area.

2.) Costs are accumulated for a time period rather than for completed jobs.

3.) Several work-in-progress accounts are used.

4.) Completed costs from each cost center or department become the raw materials cost for the subsequent department. The concept of equivalent production allows for the assignment of costs to goods that are only partially complete at the end of the period.

The three elements of cost (materials, labor, and factory overhead) apply to process cost, as well as job order costing. However, increased levels of automation in mass production blur the distinction between labor and indirect labor, an overhead item. Since overhead and labor frequently occur at about the same time and usually in some consistent proportion, many manufacturers combine the two into "conversion costs", the cost of converting direct materials into the finished product (Bicheno & Elliot, 1997).)

In the simplest scenario, there is one cost center with no beginning inventory. If all goods started during the period are finished, computing the cost per unit is easily done (Winicur, 1993). We simple add the materials cost and the conversion cost and divide by the number of units produced. If there are several departments, the cost of the completed products moves along with the units themselves, becoming the "materials" cost for the second department.

The situation becomes more complex when we have units that are unfinished at the end of the period. How are costs assigned to units that are only partially complete? The answer lies in the concept of equivalent production. All partially finished units are restated in terms of the equivalent number of complete units (Stuart & McCutcheon).

A typical production pattern adds all materials at the beginning of the production process and adds conversion costs uniformly throughout the process until the goods are complete. If there are 500 units half-finished at the end of the period they are complete with respect to materials. One hundred percent of the materials has been added, and it will take no more materials to finish the goods. The conversion costs necessary to convert the 500 units half done is the same as those needed to process 250 finished units. Thus the equivalent production for the period is 500 units for materials, 250 for conversion costs. The second issue that must be decided is how to treat beginning inventory. Partially complete units at the beginning of a period have costs attached to them from the previous period. Two methods of accounting for these costs are available: average costing and FIFO costing. With average costing, beginning inventory costs are added to the costs of the new period, creating a unit cost that is an average of the two periods. Under FIFO costing, beginning inventory costs are kept separate from costs incurred in the new period and maintain their identity until they leave the cost center. The average cost method has an advantage over the FIFO method in that all units completed during the period are assigned the same cost. While it is somewhat less accurate than the FIFO method (it doesn't provide as much feedback about cost behavior), it is often adopted because it is easier to understand and use.

By knowing the number of units in process at the beginning and end of the period, the number of units completed and transferred out and the costs associated with each group, the accountant can provide the information required for inventory valuation and for careful monitoring of the company's production activity.

The first step in process costing is to "Summarize the Flow of Physical Units." In order to do this, total production must be divided into three groups of units:

(a) Beginning Inventory: These are the units that were left over from last month. The first thing that was done did this month was finishing them off.

(b) Started and Completed: These are the units that were started this month and finished this month.

(c) Ending Inventory: These are the units that were started this month, but did not finish.

So these units have the following characteristics:












The units that are finished this month are the "Beginning Inventory" and the "Started and Completed" units. The units that are started this month are the "Started and Completed" units and the "Ending Inventory". In other words:

Units Started = Started and Completed + Ending Inventory

Units Finished = Beginning Inventory + Started and Completed

Knowing this relationship allows you to figure out how many units go into each of the three categories of units. For example, assuming that 10,000 units were started and 6,000 units were completed, if 2,000 units were in Beginning Inventory, then the following can be computed:




Beginning Inventory



Started and Completed


6,000 - 2,000 = 4,000

Ending Inventory


0,000 - 4,000 = 6,000

Often, in the process costing area, labor costs and factory overhead costs are combined in the calculation. This combined cost is referred to as "conversion costs." The thought here is that utilizing raw materials, spending money on labor, and overhead, the raw materials are converted into finished goods.

Illustration: Assume that "A" company uses process costing. The following cost data is given:

Beginning Work In Process Inventory $ 42,360

Operating costs for May:

Direct Material


Direct Labor


Factory Overhead



Total Costs


Beginning work in process consisted of 20,000 gallons (100% complete for materials & 30% complete for conversion). During May, 180,000 gallons were started. Ending work in process consisted of 30,000 gallons (100% complete for materials & 40% complete for conversion).

A.) First consider the number of units in each of the three groups described above (Summarize the Flow of Physical Units -- Step 1). (This is the blue area of the chart below.) Given is beginning inventory of 20,000 gallons. Also given is ending inventory of 30,000 gallons. Work was started on 180,000 gallons; also a given. The units started consist of ending inventory as well as started and completed units because of their characteristics. Thus, the total of ending inventory and started and completed units is 180,000.
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ending inventory + started and completed units = 180,000

30,000 + started and completed units = 180,000

started and completed units = 180,000 - 30,000 = 150,000

B.) Next, Compute the Equivalent Units Produced (Step 2), by considering the percentage of work done this month. (This is the green area of the chart below). At the beginning of the month, the beginning inventory was 100% complete for materials and 30% complete for conversion. Therefore, no materials were added to the beginning inventory in order to complete the beginning inventory. 70% of their ...

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