Cost Accounting Essay

Standard costs are “a predetermined cost which is calculated from management’s standards of efficient operations and the relevant necessary expenditure” Chartered

It is a remarkable reality that the traditional costing systems use a solitary, volume-based cost driver. This is the motivation behind why the traditional product costing system misshapes the expense of items or products. By and large, this kind of costing system appoints the overhead expenses to items on the premise of their relative use of direct work. Thus, traditional cost systems frequently report incorrect product costs. The issue is in the basic technique of the traditional costing systems. They stick to the supposition that items reason cost. Every time a unit of product is produced, it is expected that cost be brought about.

Traditional costing methods is the process of determining a unit cost by lumping indirect costs of manufacturing together and then parceling out by volume, number of units, machine hours or direct labor hours. Indirect costs

Actual costing is rarely used because managers can’t wait until the end of the year to obtain product costs. Information about product costs is needed as the year goes for planning, control, and decision making.

The traditional costing method is a distribution of manufacturing overhead costs to the actual products manufactured. By using this

Traditional Cost method is defined as “The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the products manufactured. The traditional method (also known as the conventional method) assigns or allocates the factory 's indirect costs to the items manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours. We will use machine hours in our discussion. By using only machine hours to allocate the manufacturing overhead to products, it is implying that the machine hours are the underlying cause of the factory overhead. Traditionally, that may have been reasonable or at least sufficient for the company 's external financial statements. However, in recent decades the manufacturing overhead has been driven or caused by many other factors. For example, some customers are likely to demand additional manufacturing operations for their diverse products. Other customers simply want great quantities of uniform products. If a manufacturer wants to know the true cost to produce specific products for specific customers, the traditional method of cost accounting is inadequate.” AccountingCoach. (n.d.).

This article discussed variable costing, what is primarily used for and applicability in manufacturing situations. Cost accounting supplies management with the necessary information for decision making (Hasan, 2016). The appropriate costing of a product is essential in taking appropriate managerial decisions (Hasan, 2016).

-Maintained 100% on-hand accountability of 6,668 principal end item held on the MAL and 18 consolidated memorandum receipts valued in excess of $68 million.

Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to

with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

Primarily cost and management accounting is meant for providing information to the management to enable them making planning and control. Budgeting and budgetary control are tools which can be used by the management to efficiently discharge both the management functions. Budgeting is formal management plan of actions incorporating estimated qualitative and/quantitative facts and figures. Cost analysis, on the other hand, is a process of evaluating, and analysing cost data according to their nature and behaviour to changing circumstances. Effective cost analysis is a prerequisite for preparing different meaningful flexible budgets and also for making effective comparison between budgeted and actual results. The rest of the paper consists of

An expected or foreordained expense of performing an operation or creating a decent or administration, under ordinary conditions. Standard expenses are utilized as target expenses (or premise for examination with the real expenses), and are created from recorded information dissection or from time and movement studies. They quite often fluctuate from real expenses, on the grounds that each circumstance has its impart of erratic components.

In today’s business world, there is much debate about the future of standard costing and the determination of the system becoming obsolete. With some academicians making it clear that this method is inappropriate in a modern manufacturing environment, many others are still using this system. These systems are designed to properly allocate costs of direct labor, indirect labor, materials, overhead, and selling/ general/administrative accounts on a unit basis for the purpose of accurately costing products and the subsequent control of those costs in managing the production, marketing, purchasing, and administrative functions of the business. Even though these systems are still widely popular and used for many US manufacturing firms there is still much controversy surrounding these systems in deciding if the systems are the most effective or are useless? In fact, since the early 1980s standard cost systems (SCS) have been under attack as not providing the information needed for advanced manufacturers (Hansen and Mowen, 2013). The explanation of this claim is that standard costing does not meet the needs of business because of the introduction of advanced manufacturing technologies, shorter product life cycles, decreasing emphasis of labor cost in the total production costs, and intense global competition. However, with 74 percent of respondents verifying that they were using standard costing systems still and that it is the best method out there as of right now, a

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.