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Cost Accounting

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Cost Accounting
Accounting is the collection and aggregation of information for decision makers including managers, investors, regulators, lenders, and the public. Accounting systems affect behavior and management and have affects across departments, organizations, and even countries. This paper will give the reader an understanding about cost accounting. This paper will discuss: Why is cost accounting so important to the success of the firm; what are the various methods of cost accounting and how are they used; how does an operating budget work to discipline a firm’s management; what are the elements of a budget; how are budgets constructed; what is variance analysis and how it is used. Cost accounting can be described as the process of accumulating, measuring, analyzing, interpreting and reporting cost information that is both useful and relevant to the internal and external stakeholders of a business entity. One of the many benefits of cost accounting is that it turns data into information, knowledge and wisdom about a business entity's operations that is useful for: measuring performance, reducing or managing costs, determining the fees or prices for goods and services, deciding to authorize, modify or discontinue a program or activity. Another benefit is that information on the costs programs and activities may be used as a basis to estimate future costs in preparing and reviewing budget requests. Once budgets are approved and executed, cost information serves as a useful feedback on performance. Moreover, costs may be compared to known or assumed benefits to identify value-added and non-value added activities. “Reliable information on the cost of programs and activities is crucial for the effective management of a business entity's operations. Cost accounting is especially important for fulfilling the objective of assessing operational performance. The objective is to improve the efficiency and effectiveness of operations by furnishing program managers and others with


References: Administrator. (n.d). Various Methods of Costing. Retrieved February 24, 2010, from http://www.rajpubrotherhood.com. Anderson, S.W., Lanen, W.N., & Maher, M.W. (2008). Fundamentals of cost Accounting 2e. New York: McGraw-Hill Irwin. Berry ,T. (2009). Plan vs. Actual Part 3: Understanding Variance Analysis. Retrieved February 24, 2010, from http://articles.bplans.com/growing-a-business/plan-vs-actual-part-3-understanding-variance-analysis/81. DeVilliers, H. (2007). What is cost accounting?. Retrived February 22, 2010 from http://EzineArticles.com/?expert=HendrickDevilliers. Hawthorne, N. (2008). How to Build an Operating Budget for your Small Business. Retrived February 25, 2010 from http://www.esight.org. Iaconetti, J., & O’Hara, P. (1986). Working Woman Vol. 11 (8) pg. 22. Retrieved February 26, 2010 from Proquest database. Rice Knowledge Bank. (2009). The basic elements of a budget. Retrieved February 26, 2010 from http://www.knowledgebank.irri.org.

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