Essay on Accounting Study Guide

Equally important is the managerial accounting information. Since managerial accounting information includes economic, physical, and financial, there are many more accountability reports that must be generated and evaluated (Edmonds & et al, 2008). In the article, Costco must evaluate techniques that reduce labor, expedite inventory and

Inherently, in all businesses there is overhead costs or non-direct costs. If management wants to know the true cost

What is the future value of $7,540 at the end of 7 periods at 8% compounded interest?

Abstract: The choice between fair value and historical cost accounting is the subject of longstanding controversy among accounting academics and regulators. Nevertheless, the market based evidence on this subject is very limited. We study the choice of fair value versus historical

Accounting is a career that offers many job opportunities and advancements, and a little hard work will inevitably lead to happiness and success.

In an ideal situation, information for decision making should be both perfectly relevant and precisely accurate. However, in reality, such information is often too difficult or too costly to obtain. The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative. (Horngren et al, 2008) Since primary classification of costs on the income statement are by three major management functions: manufacturing, selling, and administrative, it will be definitely most relevant accounting information for Guillermo to consider. Some income statements track fixed and variable costs using the contribution approach, whereas others adopt the absorption approach that considers all direct and indirect manufacturing costs to be product costs. Both, the contribution approach and the absorption approach can be relevant for decision making. However, the key to decision making is not relying on a hard and fast rule about what to include and what to ignore. (Horngren et al, 2008) Thus, Guillermo will need to analyze all pertinent costs and revenues to determine what is and what is not relevant for his particular decision.

19. Compared with companies that expense costs, firms that capitalize costs can be expected to report:

Opportunity cost is higher than explicit costs since opportunity costs has to involve implicit costs. Hence, in the economic profits opportunity costs are thought to be lower than the accounting profits since accounting profits don’t include implicit cost because it is not easy to measure. The accountant is not entailed in knowing what investment opportunity was given up in using the money to the commencing of the business, which implies opportunist costs are that useful

Opportunity cost is a more comprehensive and important concept than accounting cost because it allows firms to calculate their implicit cost. This illustrates to firms the value of the lost alternative and also the opportunity cost of their output goods and services. For example, a new established vehicle manufacturing company produces 2 trucks monthly. Accounting cost determines the company is making a profit when calculating their total revenue minus explicit costs only. In addition, the company

“Academicians as well as practitioners have long debated the issue of historical cost accounting versus current value accounting. It seems like this is a never-ending story.” (Abu Bakar & Mohd. Said, 2007, p. 20)

Political cost hypothesis: Large firms rather than small firms are more likely to use accounting choices that reduce reported profits.

For example, if a company produces furniture, the cost of the wood or fabric, the cost of the employee building the furniture and the patent for the design are direct costs. They are clearly visible to the production department and to each item produced.

Cost accounting may be regarded as one of the key aspects of most organizations. Lack of proper analysis and accounting for costs would bring detrimental effects on the profitability and the general financial position of an organization. However, one of the essential activities that costs accountants have to engage in is the measurement of cost behavior. Cost behavior involves finding out how costs are affected or altered when there is a change in the level of organizational activities ("What is cost behavior? | AccountingCoach", 2016). It is common to hear cases where managers have made poor decisions such dropping product lines or overbidding on services because of erroneous cost behavior information. While most institutions have been pushed into dire straits due to poor decision making or harsh economic downturns, Central Michigan University has enhanced its financial stability through its accountants who ensure appropriate measurement of cost behavior. Currently, it is among the most outstanding and stable schools with a compelling financial position.

Profit should be added to the list of costs and treated as a fixed cost. Nobody runs a business just to break even.

Providing Basis for Managerial Decision – Making: - Costs accounting helps the management in formulation operative policies. These policies may relate to any of the following matters:-