Importance of Cost/Managment Accounting for Stakeholders of Mncs

Cost accounting is used by most companies whether manufacturing or service to keep track of their daily activities. It is essential in understanding the costs of running any enterprise. In other words they aid in determining the costs of inputs and outputs used in production. It involves analyzing and evaluating different approaches in order to determine the most suitable method that management can use suitably and one that can aid in future planning. Cost accounting is therefore an essential tool in decision making. Decisions made may involve pricing levels, future investment, production levels and coming up with a good competitive strategy. Different industries use different cost accounting method depending on the type of services provided or product manufactured.

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

Absorption costing is used for all outside reports. All non-direct fixed costs are allocated using various allocation bases as indicated throughout the project. The Company does not use a full ABC costing system; however, it does employee some of the ABC concepts in the budgeting process.

The double apportionment method first allocates each support department to all other departments, so each support department receives an allocation from all other support departments. After the initial allocation (the first apportionment), the step-down method is used to allocate the costs that remain in the support departments after the first apportionment, which for all support departments consists of direct costs and allocations from other support departments. This method better recognizes intra-support department relationships than do the first two, but it adds complexity

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

5. Indirect Costs: A reasonable allocation of indirect costs in research and development costs. However, general and administrative costs not directly associated with research and development should not be included.[iii]

The following annotated bibliography includes a list of references that address cost measures, direct and indirect costs and pricing systems. Cost accounting systems are well-developed for tangible goods. Accounting principles are applied to businesses for financial reporting to analyze the profitability of the business. Direct and indirect costs is the basis to setting regulated prices on products.

Various terms are used to describe costs. Having an understanding of these terms will provide a better insight to managers and companies on making budget decisions, efficiently. Not only the ones described above should be considered, but also all types of costs related to the decision in effect. Efficient managers will considered all aspects related to the analyses in question.

A difficult problem in calculating the total costs and expenses of a department is: Assigning indirect expenses to the department

There are expenses that may benefit two or more programs, but not the entire agency, those expenses will be allocated through most

Almost every single company that is in business faces a serious problem called cost allocation. Every company no matter what they sell or what service they provide faces the problem of allocating costs to defined cost objects. The cost allocation process is a very hard process for most. Cost allocation is a very complex and difficult procedure that requires the application of appropriate accounting procedures. These accounting methods sometimes will not provide objective and fair cost allocation because they have irrational bases that are not always reliable or appropriate. This is why accounting theory and practice steadily try to advance upon methods that are already in place and help develop new ones that could provide objective and fair cost allocation (Perčević & Dražić, 2008).

Although this system is preferable, it has some disadvantages. First, refined costing systems require more information about the nature of the costs involved, and often gathering this information results in additional costs for the firm. Second, even with a broad range of data available, some averaging and estimations are still necessary. So, without outside motivation, such as the MFMPA, small firms retain simple costing systems.

In addition to inherent difficulties in determining the cost of output, management fails to recognize that different cost measurement are needed for different purposes.. If cost information is to be used intelligently, management must understand that any cost figure has inherent limitation and that no

Direct costs are costs directly related to producing the products and services of a project. On the other hand, indirect costs are costs not directly related to a project’s products or services, but are indirectly related to performing the project.

In this assignment I will be discussing how costs incurred in any organization may be classified in a number of different ways for a number of different purposes. I will also be looking to find companies that use a variety of different costing techniques and methods. I will also be discussing the comparisons between marginal and absorption costing and how the concept of activity based costing can also be compared with these. To complete the assignment I will be using a combination of lectures notes, text books and the internet to research the various ways of cost classification, and how different companies use these, to enable me