Cost Accounting System

The old saying goes, you have to spend money to make money. This rings true throughout almost all aspects of the business world. One key job of managers and executives in business is to ensure that cost does not exceed the profits. This could be done by simply looking at the ratio between income and costs, however, it is much more beneficial to really know and understand where the money is spent and where it is being made; this is where cost accounting systems come in. A cost accounting system is a general term used to describe the methods used to ascertain the cost of every aspect of a business; including, but not limited to, services, products, and customer relations (Horngren, Sundem, Stratton, Burgstahler, & Schatzberg, 2011).

In good times businesswise, it may not seem necessary to keep such intense track of cost drivers and how they affect the business as a whole (Batchelor, 2012). However, that is when it is most important. First and foremost it ensures the lowest cost of the cost drivers are being used by the company. Brighter Minds Publishing, Inc. (2011) describes a few more reasons why establishing cost accounting systems early on and in good times are important. First, it allows managers to understand the idiosyncrasies and operation of each individual product and/or service lifecycle. This tells managers which products and/or services are profitable and which ones are costing the company money, because they often do not stay constant over time. This also entitles the managers to explore the customer’s role in the product and/or service lifecycle, because ultimately, customer satisfaction and loyalty plays the largest role in whether or not the product and/or service will survive (Al-Husan & Brennan, 2009). Building off of this, a cost management system also helps the managers to understand the operations and activities that relate to the product and/or services offered (Brighter Minds Publishing, Inc., 2011). This classifies different...