Premium Essay

Objectives Of Cost Accounting

Submitted By
Words 991
Pages 4
Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. (WebFinance, 2016)
Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance. (WebFinance, 2016)
The main objective of cost accounting is to calculate the cost per unit of a product or service. Its important for us to know the cost per unit for the following reasons:
➢ To know the cost
➢ To control
➢ To take the decision whether to stop or continue the product or service.
There are three elements …show more content…
The following are different cost accounting approaches:
• Standard cost accounting
• Lean accounting
• Resource consumption accounting
• Throughput accounting
• Life cycle costing
• Environmental accounting
• Target costing
Cost Accounting is a formal system of accounting for costs in the books of accounts by means of which costs of products and services are ascertained and controlled; and in this paper, I have chosen life cycle costing and target costing. Where I will be looking in depth of both Life cycle costing and target costing; the steps and benefits of both life cycle and target costing.

Life-Cycle Costing
A product life-cycle means the total time frame within which the product is actively alive in the market. It has different stages in its life-cycle which are:
• Launch Stage
• Growth Stage
• Maturity Stage
• Decline Stage
This can be illustrated as …show more content…
This approach allows business organizations to measure the real profit of each product. It can understand the performance of each product and improve its performance.
The costs involved in making a product, and the sales revenues generated, are likely to be different at different stages in the life of a product. For example, during the initial development of the product the costs are likely to be high and the revenue minimal – i.e. the product is likely to be loss-making.
For example if we were to take a mobile, the life-cycle is very short. For some it is about few months while for others it could be more than a year. It can be seen that from the time it is launched how strong the product grows, mature and then begins to decline after awhile as new products start to emerge.
However if a product like Coca Cola is taken it has been in the market for more than a century but still it has not declined. A product like that has grown and been in the matured part of the life-cycle.
Life-cycle costing identifies the phases in the life-cycle and attempts to accumulate the costs over the entire life of the product; making it the most straightforward evaluation approach of the economy and makes cost effective calculations for construction related

Similar Documents

Premium Essay

Cost Accounting Objectives

...The main objectives of Cost Accounting are as follows : * Ascertainment of Cost * Determination of selling price * Cost control and cost reduction :Cost reduction refers to the achievement of Real and permanent reduction in the unit cost of goods manufactured or services rendered without impairing their suitability for the use intended or diminution in the quality of the product. * Ascertaining the profit of each activity :The profit of any activity can be ascertained by matching cost with the revenue of that activity. The purpose under this step is to determine costing profit or loss of any activity on an objective basis. * Assisting management in decision making :Decision making is defined as a process of selecting a course of action out of two or more alternative courses. For making a choice between different courses of action, it is necessary to make a comparison of the outcomes, which may be arrived under different alternatives. Such a comparison has only been made possible with the help of Cost Accounting information. * Identification of profitable and unprofitable products to imp profitability. * Preparation and submission of quotations and tenders with the help relevant information. * Detection and prevention of "wastage, leakage and inefficiencies operation. * Control over inventory-raw material, work-in-progress, finished goods consumable stores. PURCHASING PROCEDURES IN A CENTRALIZED DEPARTMENT * Initiating purchase requisition...

Words: 522 - Pages: 3

Premium Essay

Hilton Ppt Chapter 1 Answer Key

...Chapter 01 The Changing Role of Managerial Accounting in a Dynamic Business Environment Chapter 01 The Changing Role of Managerial Accounting in a Dynamic Business Environment Answer Key   True / False Questions   1. Controlling involves the coordination of daily business functions within an organization.  FALSE   AACSB: Reflective Thinking AICPA BB: Industry AICPA FN: Decision Making Bloom's: RC Difficulty: Easy Learning Objective: 01-02 Explain four fundamental management processes that help organizations attain their goals.   2. Measuring the performance of managers and subunits is not an objective of managerial accounting.  FALSE   AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Research Bloom's: RC Difficulty: Easy Learning Objective: 01-03 List and describe five objectives of managerial accounting activity.   3. Middle-level managers would likely be considered internal users of accounting information rather than external users.  TRUE   AACSB: Reflective Thinking AICPA BB: Resource Management AICPA FN: Reporting Bloom's: RC Difficulty: Easy Learning Objective: 01-04 Explain the major differences between managerial and financial accounting.   4. A controller is normally involved with preparing financial statements.  TRUE   AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Bloom's: RC Difficulty: Medium Learning Objective: 01-06 Describe the roles of an organization's chief financial...

Words: 6709 - Pages: 27

Premium Essay

Costing Methods

...Cost Accounting : An Introduction MODULE - 6B Elementary Cost Accounting 27 COST ACCOUNTING : AN INTRODUCTION After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. Many factors are considered while fixing the price of a product/item such as competitors’ price etc. One of the basic factors is the cost of its production. Cost is essential not only to fix price but also to ascertain the margin of profit. Knowledge of the cost determination is also necessary to keep a check on the cost of product/control on wastages, etc. The accounting used to study the various aspects of cost is known as cost accounting. In this lesson, you will learn about meaning, importance, limitations etc. of cost accounting. Notes OBJECTIVES After studying this lesson, you will be able to: state the meaning and scope of cost accounting; explain the objectives of cost accounting; differentiate between cost accounting and financial accounting; state importance of cost accounting; explain limitations of cost accounting. 27.1 MEANING AND SCOPE OF COST ACCOUNTING Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides...

Words: 2802 - Pages: 12

Premium Essay

Tayyab

...MODULE - 6B Elementary Cost Accounting Notes 95 Cost Accounting : An Introduction ACCOUNTANCY After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. Many factors are considered while fixing the price of a product/item such as competitors’ price etc. One of the basic factors is the cost of its production. Cost is essential not only to fix price but also to ascertain the margin of profit. Knowledge of the cost determination is also necessary to keep a check on the cost of product/control on wastages, etc. The accounting used to study the various aspects of cost is known as cost accounting. In this lesson, you will learn about meaning, importance, limitations etc. of cost accounting. OBJECTIVES After studying this lesson, you will be able to: state the meaning and scope of cost accounting; explain the objectives of cost accounting; differentiate between cost accounting and financial accounting; state importance of cost accounting; explain limitations of cost accounting. 27.1 MEANING AND SCOPE OF COST ACCOUNTING Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides the ...

Words: 2801 - Pages: 12

Premium Essay

Case 1

...Role of Managerial Accounting in a Dynamic Business Environment   True / False Questions   1. Controlling involves the coordination of daily business functions within an organization.  True    False   2. Measuring the performance of managers and subunits is not an objective of managerial accounting.  True    False   3. Middle-level managers would likely be considered internal users of accounting information rather than external users.  True    False   4. A controller is normally involved with preparing financial statements.  True    False   5. The upper limit on the production of goods and services if everything works perfectly is known as practical capacity.  True    False     Multiple Choice Questions   6. Which of the following statements about managerial accountants is false?  A. Managerial accountants more and more are considered "business partners." B. Managerial accountants often are part of cross-functional teams. C. An increasing number of organizations are segregating managerial accountants in separate managerial-accounting departments. D. In a number of companies, managerial accountants make significant business decisions and resolve operating problems. E. The role of managerial accountants has changed considerably over the past decade.   7. The day-to-day work of management teams will typically comprise all of the following activities except:  A. decision making. B. planning. C. cost minimizing. D...

Words: 10329 - Pages: 42

Premium Essay

Acc 311 Ch1 Test Bank

...Chapter 01 Environment and Theoretical Structure of Financial Accounting   True / False Questions   1. | The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises.    True    False |   2. | Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow.    True    False |   3. | The FASB is currently the public-sector organization responsible for setting accounting standards in the United States.    True    False |   4. | The FASB's due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed.    True    False |   5. | Accounting for stock-based compensation is an area in which the FASB has received little political interference.    True    False |   6. | The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States.    True    False |   7. | A rules-based approach to standard setting stresses professional judgment as opposed to following a list of rules.    True    False |   8. | Under federal securities laws, the SEC has the authority to set accounting standards in the United States.    True    False |   9. | The primary responsibility for properly applying GAAP when communicating with investors and creditors through...

Words: 17634 - Pages: 71

Premium Essay

Accounting

...business functions within an organization.    True    False |   2. | Measuring the performance of managers and subunits is not an objective of managerial accounting.    True    False |   3. | Middle-level managers would likely be considered internal users of accounting information rather than external users.    True    False |   4. | A controller is normally involved with preparing financial statements.    True    False |   5. | The upper limit on the production of goods and services if everything works perfectly is known as practical capacity.    True    False |   6. | Which of the following statements about managerial accountants is false?    A.  | Managerial accountants more and more are considered "business partners." | B.  | Managerial accountants often are part of cross-functional teams. | C.  | An increasing number of organizations are segregating managerial accountants in separate managerial-accounting departments. | D.  | In a number of companies, managerial accountants make significant business decisions and resolve operating problems. | E.  | The role of managerial accountants has changed considerably over the past decade. | |   7. | The day-to-day work of management teams will typically comprise all of the following activities except:    A.  | decision making. | B.  | planning. | C.  | cost minimizing. | D.  | directing operational activities. | E.  | controlling. | |   8. | Which of the following functions is best...

Words: 10780 - Pages: 44

Premium Essay

The Wife of the Jasen Rush

...first week of Cost Accounting. This week, you learn what managerial and cost accounting are and how these relate and contrast to financial accounting. You then learn about the two basic forms of cost accounting—job order and process cost systems. Most importantly, you will consider ethical considerations within managerial and cost accounting. Your work this week is a critical foundation for the entire course. The first chapter presents a thorough orientation to managerial and cost accounting, including the terms and components you will use throughout the course. Then, you will discuss the two most common and basic forms of cost accounting used in American businesses. This will establish a framework for the course. Fundamentals of Managerial and Cost Accounting OBJECTIVE: Identify key components and terminology utilized within cost accounting. Resources: Ch. 1–3 of Managerial Accounting Content • Ch.1: “Managerial Accounting” o Managerial Accounting Basics o Managerial Cost Concepts o Manufacturing Costs in Financial Statements o Managerial Accounting Today • Ch. 2: “Job Order Costing” o Cost Accounting Systems • Ch. 3: “Process Costing” o Process Costing OBJECTIVE: Compare and contrast process and job cost systems. Resources: Ch. 2 & 3 of Managerial Accounting Content • Ch. 2: “Job Order Costing” o Cost Accounting Systems o Job Order Cost Flow o Reporting Job Cost Data ...

Words: 316 - Pages: 2

Premium Essay

Accounting

...July 25, 1999 Chapter 2: Normative Accounting Theory The purpose of this chapter is to identify those characteristics of accounting information that are thought to make one system of accounting better than another. Since the material is based on eighty years of accounting research, by countless researchers, it is clearly neither possible nor desirable to review all the arguments, or even the main arguments, used by advocates of all the different competing accounting systems. For instance, it would be difficult to improve on Henderson and Peirson's [1983] 268-page thorough, balanced, well-documented portrayal of the evolutionary development of accounting thought from the "pre-theory period" (1494-1800), through the "general scientific theory period" (1800-1955), and the "general normative theory period" (1956-1970), to the "scientific theory period" (post-1970). The approach adopted for this chapter is therefore to aim for a concise summary of the products of normative accounting theory. The objective is to search for common ground wherever possible, without ignoring important differences. What is reported is intended to cover most of what is said to be "good", "useful", or "desirable" about accounting information. The four-step structure of this chapter is depicted in Figure 2.1 (next page). To begin with, a search of the literature identifies three main Objectives of Accounting. This list of objectives, which is presented and discussed in Section 2.1, is intended...

Words: 12883 - Pages: 52

Premium Essay

Acg4101

...AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Easy 28. The primary focus for financial accounting information is to provide information useful for: A. Option A B. Option B C. Option C D. Option D AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Easy 29. Which of the following is not true about net operating cash flow? A. It is the difference between cash receipts and cash disbursements from providing goods and services. B. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows. C. Over short periods of time, it may not be indicative of long-run cash-generating ability. D. It is easy to understand and all information required to measure it is factual. AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Medium 30. Which of the following groups is not among financial intermediaries? A. Mutual fund managers B. Financial analysts C. CPAs D. Credit rating organizations AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Medium 31. Which of the following...

Words: 2702 - Pages: 11

Premium Essay

Accountiang Information System

...|  |[pic] | | | | Fig 7: Typical simple organization chart. Many enterprises use a database warehousing approach for the creation of accounting information systems. This approach, coupled with user-friendly software, allows management and other designated employees access to information to create a variety of accounting reports, including required external financial reports. For example, detailed cost information about a production process is used by the production line supervisor to help control production costs. A process design engineer, when considering the best configuration of equipment and employees, uses the same information to reduce costs or to increase efficiency. Finally, production-related cost information appears in the external financial statements used by investors and creditors. OBJECTIVES OF MANAGEMENT ACCOUNTING INFORMATION |Each enterprise has implicit and explicit goals and objectives. Many enterprises have mission statement that describes their | | |goals. These goals can vary widely among enterprises ranging from nonprofit organizations, where goals are aimed at serving | | |specified constituents, to for profit organizations, where goals are directed toward maximizing the owners’ objectives. For | | |example, the American Cancer Society, a nonprofit organization, has the following mission: | | The American Cancer Society is the nationwide community-based voluntary health organization dedicated to eliminating cancer as a major health problem...

Words: 2567 - Pages: 11

Premium Essay

Management Accounting

...up strategy and management accounting system to improve their quality, cost and time. They had high quality, delivered products on time, and had low price. These competitors took market share from Reel Tape Inc. One of the reasons that led to Reel Tape Inc. lost its market share was the lack of a good management-accounting system. (Jan Bell, Shahid Ansari, Thomsa Klammer, and Carol Lawrence, 1997) What is management accounting Management accounting is a system of measuring and providing operational and financial information that guides managerial action, motivates behaviors, and supports and creates the cultural values necessary to achieve an organization’s strategic objectives. (Jan Bell, Shahid Ansari, Thomsa Klammer, and Carol Lawrence, 1997) A good management-accounting system can help firms to produce low cost products, maintain quality and deliver on time. A good management accounting information is technical, behavioral and cultural. First, technology can provide relevant information for strategic decisions. Management accountants should obtain information what they want through companies’ information system. This information should be timely and accurate. It helps management accountants analyze companies’ financial situation and then make decisions. Second, behavioral can encourage actions that are consistent with an organization’s strategic objectives. The decisions that management accountants made can help to achieve companies’ objectives. The accountants in strategy...

Words: 2784 - Pages: 12

Premium Essay

Chapter 1

...Managerial Accounting in a y Dynamic Business Environment McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objective 1 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Define Managerial Accounting g g Managerial accounting is the process of Identifying Measuring Analyzing Interpreting Communicating information 1-3 Learning Objective 2 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Managing Resources, Activities, and P d People l An organization . . . Directing Acquires Resources Organized set of activities Decision Making Controlling g Planning Hires People 1-5 Learning Objective 3 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. How Managerial Accounting Adds Value to the Organization Add V l t th O i ti • Providing information for decision making and planning. • Assisting managers in directing and controlling g g g g activities. g g p y • Motivating managers and other employees towards organization’s goals. • Measuring performance of activities, managers, and other employees. • Assessing the organization’s competitive position. 1-7 Learning Objective 4 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Managerial versus Financial Accounting A ti Financial Accounting IInterested...

Words: 941 - Pages: 4

Premium Essay

Generally Accepted Accounting Principles

...Generally Accepted Accounting Principles in Healthcare HCS/571 May 30, 2011 Generally Acceptable Accounting Principles in Healthcare Generally Accepted Accounting Principles (GAAP) are used to regulate the process of financial accounting and the preparation of financial statements for organizations. GAAP are essentially a set of rules, established by the Financial Accounting Standards Board, that provide a framework for formalized accounting systems that keep track of the financial health and well-being of organizations such as private and publicly traded firms, non-profit organizations and not-for-profits such as healthcare organizations (Finkler, Kovner, & Jones, 2007). GAAP are comprised of a group of requirements and rules, used to prepare the four primary statements used in financial accounting: balance sheets, statements of operation, statements of cash flow, and statements of changes in net assets (Cleverly, Song, & Cleverly, 2011). These statements help organizations to report on their overall financial health and ability to exist as a viable financial entity. There are a number of basic financial principles that make up GAAP. These include: • Entity concept • Going-concern concept • Matching principle and cash vs. accrual accounting • Cost principle • Objective evidence • Materiality • Consistency • Full disclosure Entity Concept According to Cleverly, Song, & Cleverly...

Words: 1160 - Pages: 5

Premium Essay

Accounting Cycle

...Introduction to Accounting Why Study Accounting? Engineering Accounting • Accounting is pervasive • Used in all types of organizations An Overview Richard S. Barr – For-profit companies – Not-for-profit companies – Governmental organizations 1 2 Organizations Accounting Common characteristics: • An objective or group of objectives • A set of strategies to achieve its objectives • Managers • A key element of management • You must understand what is being reported – – • Managers' performance is often measured by accounting data • This data is used for decision making • An organizational structure – • A need for information 3 Accounting Systems 4 Types of Information • Are the primary quantitative information system in most organizations In accounting systems: • Attention-directing – – Types of information – Purposes of accounting systems • Problem-solving – • Scorekeeping – 5 6 1 Introduction to Accounting Purposes of Acctg Systems Accounting Systems • Internal reporting to managers for planning and control • Internal reporting for special decisions, policies, and long-range plans • External reporting Four Standard Types 7 8 Types of Accounting Systems Financial Accounting 1. 2. 3. 4. • Primarily for the external decision maker Financial Tax Management Cost – – – • External reporting follows legal and GAAP requirements • Objective: provide...

Words: 652 - Pages: 3