Role of Cost Accounting and Ethical Consideration

Topics: Costs, Ethics, Cost Pages: 5 (1106 words) Published: February 2, 2009
RUNNING HEADER: Role of Cost Accounting and Ethical Consideration

Role of Cost Accounting and Ethical Consideration

Cost accounting is used to help management understand how much it cost to run a business. Understanding the role of cost accounting is important when one is trying to put together a team of managers to help run the company. The CEO of a merchandising organization needs to hire a CFO to run the accounting system, but the CEO has little understanding of cost accounting. The CEO will hire a consultant to help her understand the role of cost accounting, the role of ethics in cost accounting, and compare and contrast the absorption and variable costing. Role of Cost Accounting

Cost accounting is the area of accounting that record, measures, and report information about how much things cost within the organization. Cost accounting is used in the following organization: manufacturing, merchandising, and service companies, governments, universities, and not-for-profit and profit-making enterprise (Maher, 1994, p.3). The role of cost management plays in helping an organization to maintain a competitive advantage by creating more value at a lower cost by efficiently managing an organization’s value chain of activities, processes, and functions (Hilton, 2005).

The information from the cost reports should be interpreted and presented in a way that will be useful for management. Budget is the key for planning and controlling. The budget contains cost accounting data. Management will not be able to set an optimal price for a product or service can not be decide without knowing the cost of what is to be sold (Griffin, 2008). Cost accounting has traditionally considered a manufacturing support system. The cost object of an organization is the cost of anything that management believes is important. For example, the cost object could be the cost of running a department for the year, the cost of a product, the cost of a bank account, and the cost of maintenance for equipment.

“Cost accounting can help management achieve the following: Formulating and

1. Formulating and implementing plans and budgets that motivate employees toward the achievement of the company goals.

2. Establishing cost tracking methods that allow control of operations, cost savings, and improvement in quality.

3. Controlling inventory cost, minimizing inventory investment, and determining the cost of each product or service.

4. Pricing products and services in ways that are congruent with organizational goals.

5. Making prudent decisions that impact both short-term and long-term revenues and expenses” (Griffin, 2008, p.2).

It can be challenging for cost accounting system to provide reliable useful information. The information can be misleading depending on the preparer.

Role of Ethics in Cost Accounting

The accountant role in developing standards of professional ethical behaviors for the organization as well as for self should be a proactive one. “Missing in most discussions of ethics is the fact that, by definition, ethics is the part of philosophy that deals with the practical application of those actions over which we have control” (Turner, 1990, p.1). Ethical decisions appear to be subjective, but the decisions are made in context of personal and professional lives. “The individual dealing with a personal ethical response to a given situation does so within an organizational structure which itself has defined certain responses as ethical or unethical” (Turner, 1990, p.1). A conflict can arise when the ethical belief of an individual is different from the organizational belief. For example, a management can give misleading information about a project because he or she does not want the project to be terminated, so the management changes the number to reflect a positive impact instead of a negative one.

“Two critical factors that must be addressed by a company serious...

References: Griffin, M., & Jordan, R. (2008). Cost Accounting for Planning and Control. Retrieved
November 30, 2008 from
Hilton, R. (2003). Absorption Costing and Variable Costing. Retrieved on November 30,
2008 from
Hilton R., Maher, M., & Selto, F. (2006). Cost Management: Strategies for Business
Maher, M., & Deakin, E. (1994). Cost Accounting: Its Nature and Usefulness. Cost
Turner, R. (1990). Ethics and Professionalism: The CPA in Industry. The CPA Journal.
Retrieved on November 30, 2008 from
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