Chapter 1
Cost Accounting: Information for Decision Making
Solutions to Review Questions
1-1.
Financial accounting is designed to provide information about the firm to external users. External users include investors, creditors, government authorities, regulators, customers, competitors, suppliers, labor unions, and so on. Cost accounting systems are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial accounting systems are based on standards or rules. This allows the user to compare the results of different firms. Managerial accounting systems do not require rules. Each firm is free to develop managerial accounting systems that best
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Often, these situations arise when managers are using their intuition and their experience to identify new business opportunities and cannot point to data that support their views. For example, a marketing manager might view investment in a new advertising campaign as necessary for remaining competitive even though it appears to increase costs. Because the accountant does not have expertise in this area, she cannot verify the information the marketing manager is using.
In a few cases, however, a marketing manager may wish to pursue a project because of personal reasons (for example, because he was the champion of the product), and hopes to have an economic analysis to justify additional advertising support. In these situations, care must be taken to ascertain the economic merits of the plan, and, if the plan cannot be justified on economic grounds, the manager must make the case for the project on another basis.
The final responsibility for the decision rests with the manager. Therefore, plans that cannot be justified on a cost analysis basis may still be adopted at the discretion of operating management. The controller should be clear that the project is justified on a basis other than (easily measured) costs.
In the control area, the accountant is charged with the responsibility of making certain that plans are executed
Financial Accounting is concerned with the past, while Managerial Accounting is concerned with the future.
a service department’s costs have been allocated, costs are not reallocated back to it under
“The accounting system generates the information that satisfies two reporting needs that coexist within an organization: financial accounting and managerial accounting” (Schneider, 2012, ch 1.1, para 1). Managerial accounting is the process of preparing reports and accounts required by management to make business decisions for daily, weekly, monthly, and yearly projects. Financial accounting is the branch of accounting that organizes accounting information for presentation to interested parties outside of the organization. Financial accountants produce annual reports for external
Financial accounting is an information-processing system that generates general-purpose reports of financial operations (income statement and statement of cash flows) and financial position (balance sheet) for an organization. It is used by decision makers inside and outside the firm, such as security investors, analysts, and lenders. Adding to this external orientation are external financial reporting requirements determined by law and generally accepted accounting principles.
The structure of an organization will affect its financial management. Generally financial accounting is for outside use so they emphasize external reporting; which means they report to third parties such as; Medicare, Medicaid and other government entities and health plan payers. Managerial accounting is considered to be prospective as well as retrospective. It is of the upmost importance that the accountant must follow the guidelines principles and ethical standards of planning, controlling, organizing and directing, and decision making if they want to be successful at their job.
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An accounting system affords companies the luxury to be able to use their financial information whenever they need it, by it being store at a convenient location. There are three divisions within the accounting method; analysis, design, and implementation must be complemented with a system of control. This control is another system within a system that is design to ensure success of the accounting systems. Internal controls keeps business safe, preventing someone from committing fraud or abusing the system; this way the information that is store in the system is kept accurate and reliable. Part of internal controls is who are responsible; physical, mechanical, and electronic controls; there must also be segregation of duties, and independent internal confirmation.
The company should probably use direct labor-hours as the activity base, since the fit of the regression line to the data is much tighter than it is with tons mined. The R2 for the regression using direct labor-hours as the activity base is twice as large as for the regression using tons mined as the activity base. However, managers should look more closely at the costs and try to determine why utilities costs are more closely tied to direct labor-hours than to the number of tons mined.
Financial and managerial accounting are integral functions that allow organizations to manage its operational activities. In addition to budgets and variance analyses, both financial as well as managerial accounting are vital elements of healthcare finance. It is therefore important
Financial management is important to the organization because it provides pertinent finance and accounting information to help managers accomplish the purpose of the organization. Financial accounting provides accounting information to external users. On the other hand, managerial accounting is more for managers (internal users) to use for things like planning, budgeting, etc. The definition of finance has changed over the years, but it’s used to ultimately evaluate previous decisions and make assessments for future decisions of the organization.
Company operates in the Industrial Sector – Services, and Industry – Regional Airlines. According to the Standard Industrial Classification System (SIC), company belongs to the industry group 451: Air
3. Managerial Accounting deals with procuring of data for the organisation's management i.e. to serve the internal users with necessary accounting information to carry out the management tasks of planning, organising, actualising and controlling. " Management Accounting is the presentation of accounting Information in such a way as to assist management in creation of policy and in the day to day operations of an undertaking". 4. Financial Management deals with the process adopted by an organisation for taking financial decisions through analysing and interpretation of financial data for meeting the organisations objectives.
For instance, the concept of cost estimation which assists in estimating future expenditure as the expenditure depends on the cost of the respective activities can be applied in the setting of a budget which is simply an estimate and schedule of all costs required to be assigned to an activity. One can make an estimation of the resources required for an activity by applying the cost estimation techniques. Since there are limiting factors to each activity such as scarcity of resources for activities, the concept of constraints can be applied together with the concept of cost volume profit analysis to ensure that maximum benefits are driven from the scarce resources and the number of activities that are available. This facilitates the allocation of resources that most equitable and profitable. The theory of constraints is also applicable in the process of setting up budgets. In setting up budget one considers the amount of resources that are available and cannot therefore set a budget plan that exceeds the amount of resources that are available. This implies that the budget is constrained by the amount of
A major difference between financial accounting and managerial accounting is their differing uses in regards to present and future data for decision-making. Financial accountants prepare data from transactions that have already occurred and managerial accountants prepare statements in regards to future decision making for their company. According to countingtools.com, the economy is always changing and not everything can be predicted, therefore, managerial accounting could only be useful to a certain degree.
Management accounting is used to provide managers with information, so they can make informed business decisions. The next category is open-book accounting; this is defined as an accounting principle that aims to improve accounting in organizations. Tax-accounting is defined as the accounting needed to comply with jurisdictional tax regulations. In other words, tax-accounting is used to put tax on goods and services. Accounting has revolved into what every company uses today which is the equation of; Assets=Liabilties+Owners Equity. The meaning of this equation is to show companies what they own and what they owe to there creditors and everybody else.