Accounting

Thesis statement

Cost accounting is an accounting system, which focuses on the development of actual costs and budget for the overall process, it includes analysis and operation. Generally cost accounting method are used by managers for making important decisions, as these decisions helps company for lowering down the cost and improve the profitability. Effective use of cost accounting can help in controlling and managing the overall operations.

Why is cost accounting so important to the success of the firm?

Accounting experts define Cost Accounting as the branch of accounting which pertains to the elaborative process of formulating the costs of production of an organization by factorizing the input expenditures or costs on each step of the production process. Apart from taking variable costs, cost accounting also factors in fixed costs, such as depreciation expenditures. By analyzing the importance of cost accounting to the success of a firm, we will get a better understanding as to why companies use this type of accounting process. Becoming knowledgeable about the various methods of cost accounting and how they are used will enable the company to operate the process appropriately. Understanding how an operating budget works to discipline a firm's management is also useful information when running a company. To do so, one needs to know the actual elements of the budget and how they are constructed. Lastly, one more beneficial piece of information to comprehend would be what a variance analysis is and how it is used. In the midst of discussing the previous items, there will be various elements that relate to the above topics in which there will be further detail provided (Bhimani et al., 2008).

In reference to the question in picture, it is important to understand that cost accounting occupies the central stage in the decision making process, because managers tend to utilize the concepts of cost accounting to formulate approximations of the actual costs of across production setups and departments. Cost accounting aids management in formulating budgets, which eventually allows the organization to avoid fluctuations and utilize resources in order to maximize profitability.

A common theme which is prevalent amongst accounting professionals is the belief that if complete knowledge of cost accounting would have been implemented the world economy would not be facing any recessions or downturns that it currently faces. Moreover, a comprehensive analysis of past literature suggests that organizations that have clearly understood and implemented cost accounting are more capable of operating successfully through tough economic times and are more likely to perform positively as compared to competitors (Barback 2009).

It should be noted that cost accounting enables managers to become consciously aware and hence make better decisions, because the accounting discipline provides key insights pertaining to controlling and planning. Cost accounting assists managers by determining prices and costs for services as well as goods, managing costs, reducing costs, measuring performance, and subsequently analyzing the impact of a specific activity with respect to its monetary or tangible costs (Bragg 2001).

The issue of measuring the costs and understanding the subsequent fluctuation of these costs ...