How Does The Cost Accounting Function Assist in The Management of A Business

 

Jude A. Galwat 1208 AE212 1 How How does does the the cost cost acco accoun unti ting ng func functi tion on assi assist st in the the mana manage geme ment nt of a business?   Answer: The cost accounting function assist in the management of a business through calculate and report to management various costs incurred by organization in the process of making a final product/service. So cost accounting supplies a part of  all the necessary information needed by management to take informed decisions 5. How is cost accounting information used by management?   Answer: Cost accounting provides the detailed cost information that management needs to control control current current operati operations ons and plan for the future. Management Management uses this infor inf ormat mation ion to decid decide e how how to alloc allocat ate e reso resourc urces es to the the most most effici efficien entt and profitable areas of the business. Cost Co st ac acco coun untin ting g is used used intern internall ally y by man manag ageme ement nt in orde orderr to make make fully fully informed info rmed busines business s decisio decisions. ns. Unlike Unlike financia financiall accounti accounting, ng, which which

provides information information to external financial statement statement users, cost accounting is not required to adhere to set standards and can be flexible to meet the needs of management.

6. Why is unit cost information important to management?   Answer: Unit costs are synonymous with the cost of goods sold and the cost of sales. This accounting measure includes all of the fixed and variable costs associated with the production of a good or service. Unit cost is a crucial cost measure in the operational analysis of a company.

7. For a manufacturer, what does the planning process involve, and how is cost accounting information used in planning?   Answer: Planning process involve the following:

1. Assi Assign gnin ing g Resp Respon onsi sibi bili lity ty,, the the esse essenc nce e of resp respon onsi sibi bili lity ty acco accoun unti ting ng is the the assignment of accountability for costs or production results to those individuals who have the most authority to influence them. It requires a cost information system that traces the data to cost centers and their managers. 2. Periodic Periodically ally Measurin Measuring g and Comparin Comparing g Results Results actual actual operating operating results results should be reviewe reviewed d periodi periodicall cally y and compared compared to the objecti objectives ves establis established hed in the planning process. This analysis, which may be made monthly, weekly, daily, or  even hourly in the case of production and scrap reports, is a major part of cost control because it compares current performance with the overall plan.

 

3. Taki Taking ng Nece Necess ssar ary y Corr Correc ecti tive ve Acti Action on the the perf perfor orma manc nce e repo report rts s may may iden identi tify fy problem areas and deviations from the business plan. Appropriate corrective action should be implemented where necessary. A significant variance from the plan is a signal for attention. An investigation may reveal a weakness to be corrected or a strength to be better utilized. Cost accounting information used in planning is by the preparation of reports that management can use to plan and control operations. 9. Define ‘‘responsibility accounting.’’   Answer: Respon Res ponsi sibil bility ity ac accou count nting ing invol involve ves s the the intern internal al accoun accountin ting g and and budge budgetin ting g for  for  each eac h respo respons nsibi ibilit lity y cente centerr within within a compa company ny.. The The objec objectiv tive e of respo responsi nsibil bility ity accounting is to assist in the planning and control of a company's responsibility centers.

11. What are the requirements for becoming a Certified Management Accountant?   Answer; Certified Management Accountant (CMA) certificate—which is awarded by the IMA

after the candidate completes a four-year college degree, two years of relevant professional professio nal experience in management management accounting accounting and financial financial management, management, and a rigo rigoro rous us four four-p -par artt exam examin inat atio ion n whos whose e topi topics cs incl includ ude e busi busine ness ss anal analys ysis is,, manag man agem ement ent ac acco coun untin ting g and and repo reporti rting ng,, strat strategi egic c manag manageme ement nt,, and and busin busines ess s appl ap plic icat atio ions ns wi with th a stro strong ng emph emphas asis is on ethi ethics cs—e —evi vide denc nces es a high high leve levell of  competency in management accounting.

19. How would you describe the following accounts—Finished Goods, Work in Process, and Materials? Answer: Finish Fin ished ed - Goods Goods,, are are good goods s that that have have been been comp complet leted ed by the manuf manufac actur turing ing process, or purchased in a completed form, but which have not yet been sold to customers.

Work in Process - work in progress, goods in process, or in-process in-process inventory are a company's partially finished goods waiting for completion and eventual sale or the value of these items. These items are either just being fabricated or waiting for  further processing in a queue or a buffer storage. Materials - A material is a substance or mixture of substances that constitutes an object.

20. Compare Compare the manufac manufacturi turing, ng, mercha merchandi ndisin sing, g, and servic service e sectors sectors.. How do they differ as to the kinds of businesses in each category, the nature of their  output, and type of inventory, if any?

 

 

Answer : Sector

Examples

Service

Hotels, accoun acc ountan tants ts,, hair  hair  stylists, sports franchises

Merchandising

Bookstores, electronics electron ics stores, sports memorabilia shop shops, s, beve bevera rage ge wholesalers Segway producers, manuf man ufact acture urers rs of  electron elec tronic ic games, games, home builders

Manufacturing

Product or Service

Inventory  Account(s)  Account (s) Intangible Intangib le benefits benefits None such such as lodg lodgin ing, g, tax tax pre prepara parati tio on, grooming, entertainment Tangibl Tan gible e product products s Merchandise pur urc chas hased fro from inventory suppliers in finished form Physicall products Physica products Fini Finish shed ed Good Goods, s, created by the Wo Work rk in Pr Proc ocess ess,, application of labor  Materials and technolo technology gy to raw materials

24. Dist 24. Distin ingu guis ish h pr prim ime e cost cost fr from om conv conver ersi sion on cost cost.. Does Does pr prim ime e cost cost plus plus conversion cost equal the total manufacturing cost? Answer: Prime costs are defined as the expenditures directly related to creating finished produ pro ducts cts,, while while conv convers ersio ion n costs costs are are the the expen expense ses s incur incurre red d when when turn turning ing raw raw materials into a product.

25. In what way does the accounting treatment of factory overhead differ from that of direct materials and direct labor costs?   Answer :  According  Accordin g to generally generally accepted accepted accounting principles principles (GAAP), manufactur manufacturing ing overhead must be included in the cost of Work in Process Inventory and Finished Goods Inventory on a manufacturer's balance sheet, as well as in the Cost of Goods Sold on its income statement.

Manufa Manu fact ctur urin ing g over overhe head ad (als (also o know known n as fact factor ory y over overhe head ad,, fact factor ory y burd burden en,, production productio n overhead) overhead) involves a company's company's manufacturing manufacturing operations. operations. It includes includes the costs costs incur incurred red in the the manufa manufact ctur uring ing facili facilitie ties s other other than than the costs costs of direc directt materials and direct labor. Direct labor costs are added to the Work-in-Process account at the end of the work week. Indirect labor costs are added to the Factory Overhead account. 27. How are non-factory costs and costs that benefit both factory and non-factory operations accounted for?

 

Answer:   Non-manufacturing Costs Non-manufacturing costs refer to those incurred outside the factory or production departm dep artment. ent. These are costs costs are not needed needed in transfor transforming ming materials materials into finished goods. Non-manufacturing costs include: selling expenses and general expenses.

 28. What is a mark-on percentage? Answer; Is a percentage of the manufacturing cost per unit. 29. When is job order costing appropriate, and what types of businesses use it? Answer: The job order and process cost accounting systems are the principal systems used by manufacturing organizations. 33. What are standard costs, and what is the purpose of a standard cost system?   Answer : Stand Standar ard d costs costs are are costs costs that that woul would d be incur incurre red d unde underr effic efficie ient nt opera operatin ting g

conditions and are forecast before the manufacturing process begins.  A standard cost system, which is not a third system but may be used with either  a job order or a process cost system, uses predetermined standard costs to furnish a measurement that helps management make decisions regarding the efficiency of operations. E1-5 Cost flow Explain in narrative form the flow of direct materials, direct labo labor, r, and factory overhead costs through the ledger accounts.   Answer : Direct materials - cost of items that form an integral part of the finished product. They refer to the major parts or ingredients. Examples include wood in furniture, steel in automobile, water in bottled drink, fabric in shirt.

Factory overhead - also called manufacturing overhead , refers to all costs other than direct materials and direct labor spent in the production of finished goods. Factory overhead includes indirect materials such as cost of nails, thread, glue, etc.; indirect  labor  such   such as salary of the supervisor; and factory expenses such as rent of the factory space, depreciation of factory equipment, utilities expense of the factory, factory supplies. Direct labor - cost of labor expended directly upon the materials to transform them into finished goods. Direct labor refers to salaries and wages of employees who work to convert the raw materials to finished goods. Direct materials  Add: Factory Factory overhead overhead    

Direct Labor Total manufacturing cost

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