Hugo M. Rabson
Thursday, December 9, 2010
Cost Accounting at Aunt Connie’s
In 1986, Aunt Connie’s Cookies was founded by Maria Villanueve. A family-owned, family-operated venture, Aunt Connie’s has grown in popularity over the years. Real Mint and Lemon Crème are the two most popular brands. As a consequence of the recent growth spurt, Maria faces a fork in the road of the business. The following choices must be made:-
Ought the firm to continue to focus on manufacturing or ought it to focus on purchasing and redistributing products?
Ought the firm to support unprofitable products by subsidizing them internally for the benefit of brand awareness or ought it to eliminate them and focus on the more profitable lines of product?
What is the most profitable allocation of resources within the firm? Whereas an economist would draw a production possibility curve, an accountant will focus on financial information such as the balance sheet and the income statement.
Decisions with lasting influence must not be made in haste. Cost accounting will help Maria to make better decisions: it will afford her a better understanding of factors such as production costs, fixed costs, inventory methods, and cost flow.
Cost Accounting System
The five components of a Cost Accounting System (or CAS) are designed to monitor and evaluate the production process in five ways: input measurement, inventory valuation, cost accumulation, cost flow assumption, and the recording of cash flows. These five parts of the analytical process will enable Maria to compare input and output results of her company, thus giving her a better understanding of the company’s financial performance.
First, the costs that flow through Inventory accounts are scrutinized. They are grouped into four broad methods of analysis: pure historical, normal historical, standard, and throughput. Pure historical covers the historical costs alone; meaning, it... [continues]
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