Accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results; (Merriam-Dictionary, 2012). Cost accounting is described as the evaluating approach to the overall cost of when the business evaluates the cost that is associated with the business. Cost accounting consists of the identification, measurement, collection, analysis, preparation, and communication of financial information (Khan, 2010). In this paper, I will discuss the reasons why cost accounting is important to businesses and what role it plays in order for they to succeed. I will also discuss the different methods of cost accounting and how are they used? What does operating a budget help a firm’s management; what are the elements of a budget and how are they constructed.
Businesses use cost accounting to help manager illustrate potential areas to reduce cost and process for services and goods, describes how goods and services should be priced to reflect their true cost (Conway-Schempf & Ph, 2001). Cost accounting is the process of accumulated, measuring, interpreting and the reporting of cost information that is relevant to the stockholders of the business. Managers as well as management use cost accounting to help in justifying the capacity in helping to cut costs for the company in order to increase that company’s profit. Internal use, versus external use tools allow users such as financial accounting, cost accounting who do not need to follow the General Accepted Accounting Principles (GAAP) because they use a more practical type if accounting. The importance of cost accounting," 2011). It also gives managers a good idea of what the actual cost of the processes, departments, operations or product which is the foundation of their budget, allowing them to analyze fluctuation and the way funds are used socially for profit ("The importance of cost accounting," 2011). The company depends on management and their choices. Trusting that their decisions are decisions that are in the best interest for the company and will only increase the company’s profits and make them a profitability company
The use of cost accounting is very important in management level positions and anyone whos role is in accounting and the accounting process. Although there are multiple benefits of cost accounting, there is a benefit that helps turn data into knowledge information that is helpful in assisting with the measuring the performances, reducing and managing cost, as well as determining the price for goods and services (M. Khan , 2010).
There are so many different methods of cost accounting; different industries use different methods for ascertaining cost to their products. The following are methods of cost accounting and their roles are summarized as follows:
• Batch Costing: The identification in which the assignment of cost \incurred in completing the manufacture of products or services which...