Purpose of Cost Accounting

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Purpose of Cost Accounting


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Role of Cost Accounting

When properly implemented, the cost accounting function can have a pervasive influence in the modern corporation. Unfortunately, it is not always properly implemented because management often is not completely aware of all the uses to which the cost accounting function can be put. This chapter describes the main categories of activities in which this function can become involved, and can be used as a guide by the controller in creating a well-rounded niche for the cost accountant.

The key task for
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Business unit-level reports. These reports must include a much larger quantity of information, for the recipient (the plant manager) needs to know about the operation of each department, as well as a host of operational issues such as the cost of quality, inventory turnover, machine utilization, profitability, and cash flow projections. This tends to be the most voluminous of all reporting packages, as well as the one that includes the greatest mix of financial and operational information. Function-level reports. These reports can be issued to individual departments or at lower levels, for example, to the supervisors of individual machines. Such reports are custom-designed for each recipient, with some requiring more financial data (e.g., for the sales manager who wants to know about customer bad

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debts or orders booked) and others including almost entirely operational information (e.g., for the warehouse manager who is interested in inventory turnover, kiting percentages, and receiving accuracy).

Project-specific reports. A project report is slanted more toward just those costs being incurred for a specific purpose and so tends to be heavy on direct costs and light on most other allocations. This report usually compares incurred costs against budgeted costs expected to have

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