Cost Accounting: Its role and ethical considerations Essay

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Cost Accounting: Its role and ethical considerations

Introduction:

Accounting is the process of identifying, measuring, and communicating economic information about an entity for the purpose of making decisions and informed judgements. The major areas of within the accounting are: Financial Accounting, Managerial Accounting/Cost
Accounting and Auditing- Public Accounting

Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of an entity and to support the management in planning and decision-making process.
Cost accounting is the subset of managerial accounting and it helps management in determination and accumulation of product, process or service cost.
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In cost accounting, the lack of understanding of the accounting and finance process by the business manager is an incentive for the unethical employee to manipulate the system. Ethics help management in:

· Providing factual and true information to its users,

· Determining the nominal price of its products,

· Maintaining appropriate professional relationships, and

· Maintaining efficacy

In today?s world of corporate scandals, an appreciation of ethical standards and a commitment to the proper reporting and disclosure of financial information needs to be constantly reinforced within the area of accounting.

Absorption and Variable Costing:

Absorption Costing: All costs (fixed and variable) of production are product costs. Which means under absorption costing, both variable and fixed manufacturing costs are included as a part of the cost of the product manufactured.

Variable Costing: Only those costs of production that vary directly with activity (variable costs) are treated as product costs. Under variable costing, only the variable manufacturing costs are included as a part of the cost of the product manufactured. The fixed manufacturing costs are treated as an expense of the period in which they are incurred.

Selling and administrative costs

The basic difference between absorption and variable costing relates to the handling of fixed manufacturing

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