Cost accounting, also known as managerial accounting, is a process that records, analyzes, and interprets data about costs for decision-making purposes. Find out more about cost accounting, accounting principles, cost accounting a managerial emphasis, cost accounting principles and applications, managerial accounting on careerkeg.com.
Cost accounting involves determining how much it costs to produce goods or services in order to determine the profitability of a business. Cost accounting is also used to calculate the total cost of producing a product or service, which helps managers make pricing decisions.
Cost Accounting A Managerial Emphasis
Introduction
Chapter 1 Managerial Accounting and the Business Environment
Welcome to the book! This is where we’ll begin our journey through the world of managerial accounting. We’ll start by learning how managers use financial information and other data about their companies’ performance to make decisions about current operations, plan for the future, and determine whether those plans are working out as expected.
You might notice that this chapter doesn’t yet include any discussion of cost accounting or costing systems. That’s because we’re going to save that material for later in the book—but it will help you understand why cost accounting is so important once we get there!
Chapter 2 Cost-Volume-Profit Analysis
Cost-volume-profit (CVP) analysis is a managerial accounting tool for making decisions about the short-run and long-run cost levels. You can use CVP analysis to analyze the relationship between sales volume, variable costs and fixed costs.
Your goal in performing CVP analysis is to determine what price you should charge for your products and services in order to maximize profits. In other words, it helps you figure out how much money you’ll make if you keep increasing your sales volume or if you lower your prices.
Chapter 3 Job Order Costing
Job order costing is used to allocate costs to products or services.
The basic principle of job order costing is that all manufacturing costs are accumulated within each job on an individual basis. Because production isn’t continuous, the costs of processing each individual job can be accurately determined.
For example, if a company produces widgets in batches rather than continuously throughout the day or week and keeps track of how much time it spends making those widgets (rather than simply tracking how many hours have passed), then it could use this information to determine exactly how much it spent on materials and labor for each batch (or “job”).
Chapter 4 Process Costing
Process Costing
Process costing is used to assign costs to products or services that are manufactured or provided in a process. Process costing involves assigning costs to the processes that make up the product or service, rather than assigning them directly to units produced. A process may be defined as any activity performed with an objective of producing one or more units of output. An example of this would be the steps involved in making one apple pie from start to finish: peeling apples, washing apples, cutting apples into slices, baking apples for 20 minutes at 400 degrees Fahrenheit (200 degrees Celsius), cooling down pie and adding icing on top. The steps taken during each apple-peeling step can then be broken down further into smaller processes: opening bag of peeled apples; removing peel from each apple; taking out seeds with knife; cleaning off any remaining pulp with brush; placing peeled apple on cutting board and slicing into thin pieces using paring knife set at 45 degree angle against blade guard (to prevent fingers getting cut); placing slices onto cookie sheet lined with parchment paper sprayed with nonstick cooking spray; spreading slices out evenly so they don’t overlap too much but still give room for other ingredients like cinnamon sticks after they’re baked together later on… You get where we’re going here?
Chapter 5 Cost-Volume-Profit Analysis: Additional Issues
Before we can look at how to use cost-volume-profit analysis to improve a company’s performance, it is necessary to understand three additional issues related to cost accounting. The first issue is the difference between variable and fixed costs. Variable costs are those that increase or decrease with changes in activity levels; fixed costs do not change with changes in activity level. For example, consider a firm that produces widgets and has two types of labor: machine operators and administrative staff (support personnel). If sales increase by 10%, then machine operators’ wages will increase by 10%, but administrative staff will remain unchanged because these salaries are paid on a contract basis for the whole year regardless of how many widgets are produced each month.
Variable costing does not assign any overhead cost directly to products as they pass through various stages of production; all overhead expenses are lumped together into one account called “overhead.” One reason for using this approach was its simplicity—because there was no need for detailed accounts, accounting records could be kept without much effort on behalf of managers who didn’t have time or expertise needed for accurate record keeping themselves
Chapter 6 Activity Based Costing and Management
The ABC approach is a powerful tool for improving managerial performance. It can be used to:
- Identify the costs of activities
- Cost products and services
- Allocate indirect costs of production
- Manage costs more effectively, including cost reduction and cost avoidance
Chapter 7 Budgeting
Budgeting is a management tool. A budget is an estimate or forecast of expected income and expense. It helps managers make better decisions by providing them with information about the future, so they can plan ahead.
By knowing what’s coming in, you can plan how much money will be available to pay for things like salaries or equipment purchases. By knowing what’s going out, you’ll know whether you have enough cash reserves to meet expenses during periods when business may be slow (for example, during winter in northern climates).
Chapter 8 Flexible Budgets and Standard Costs
Flexible budgets are used to control costs and improve efficiency. The standard cost of a product or service is determined by adding the variable, fixed, and allocated overhead costs together. The total expected production volume is then divided by this figure for each budgeted cost element to arrive at the budgeted amount per unit for allocation purposes.
The schedule below shows how a flexible budget works:
- Column 1 shows actual sales during year 1 (50,000 units).
- Column 2 shows planned sales for year 2 (55,000 units).
- Column 3 shows projected direct labor hours required to produce 50,000 units of activity at the new activity level.
In this example, $1 million in fixed manufacturing overhead has been allocated based on capacity utilization estimates that were made using historical data. These estimates were developed using three different capacity-utilization rates: 80%, 90%, and 95%. When used as a flexible budget format with multiple rates available under it, you can see how much each rate will affect your bottom line before making any decisions about what levels of capacity utilization you want to use in future periods
Chapter 9 Performance Measurement in Decentralized Organizations
Performance measurement is a process of collecting and analyzing information about the effectiveness of a business’s activities. Performance measurement is important because it helps managers make better decisions, it allows the business to improve its effectiveness, and it can help managers see if they are meeting their goals.
Performance Measurement: A Managerial Emphasis, 10th Edition by Henry R. Tosi, Michael V. Marn and Joel B. Cohen explains performance measurement as a combination of five distinct processes: establishing objectives; measuring results; controlling output; communicating results to management; and using performance data for decision making (p 21).
Chapter 10 Capital Investment Decisions
In addition to the methods you have learned for evaluating incremental investments, there is another method that managers can use to assess capital expenditures. This method—capital budgeting—can be used when a firm plans to acquire new assets or replace existing ones. Capital budgeting can also be used if a manager wishes to increase the level of production capacity through higher levels of investment in machinery, equipment and buildings.
In this section, we will describe how capital budgeting works and how it differs from cost accounting methods discussed earlier in this book. We will then present an overview of several specific capital investment decisions facing companies today:
- The business case for using maintenance-type expenditures versus replacement-type expenditures;
- The decision whether to pay cash or finance a purchase;
- The decision whether or not it makes sense for your company to sell off its fixed assets at some point in time; and finally
A good balance between cost accounting principles and concepts.
In the book, you will learn about the cost accounting principles and concepts. The author has tried to maintain a good balance between both of these sections. For example, in Chapter 1: Introduction To Cost Accounting Principles And Concepts, the author provides an overview of what is cost accounting? What are its objectives? How do costs differ from revenues? When should a firm use the product approach or job order costing instead of process costing? It’s important that you understand this material if you want to succeed as an accountant within an organization because it gives you a foundation on which later chapters can build.
Conclusion
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