Cost Accounting System

Cost Accounting System

Introduction

The cost accounting system utilized in organization named SBM that is designed to evaluate cost of the product, analyze the profitability and helps in making decision pertaining to manufacturing activities. It is designed to target or facilitate the manufacturing industry and associated companies operating from large to small scale. The manufacturing companies need cost accounting systems to analyze the cost of products produced in order to make appropriate decisions pertaining to price. The cost accounting system of SBM possesses a activity based model that can be utilized to create other cost related models or processes ranging from simplistic nature to the complicated ones. The main characteristic of this software is that it comprehends the logical essence of the business procedures and how activities take place inclusive of use of materials, inventory, and other necessary components in the process of manufacturing. The execution of activity based costing (ABC) can be considered as one of the initiatives taken by the organizations to produce high quality products with cost and time effectiveness. Many researchers (Shadan and Sullivan, 1995) debated on the effectiveness of the activity based costing and proved that implementation of such system provide competitive advantages. With the help of SBM cost accounting system, one can review and analyze the total cost and compare profits made against it from valuable production activities and non valuable production activities. The cost accounting system can be utilized not only in the phase of production, but also in assessing sales, and analyzing the distribution process of the manufacturing companies.

Discussion

The main features of the SBM cost accounting system are as follow:

Identification of basic and important products yielding profit and satisfying customers.

Optimization of product and customer mix.

Assessing and determining the non profitable products and loss incurred due to such baseless activities or production of such products.

Identification of the true potential and capacity of production by the organization.

Maximization of return from investment and return from assets.

The system allows manufacturing companies to utilize variety of costing methodologies such as standardized, actual, or weighted average and activity based costing methods. In addition it also facilitates organizations to use time oriented or resource based accounting methodologies as per their need and suitability to business operations. It also helps in tracking the cost of products and localities of manufacturing and associated operations. It also produces variance analyses of actual and budgeted cost which is helpful in validating the cost oriented models and also helps in determining and assessing the area where improvement can be made (www.productcosting.com, n.d.).

The main method used by this technology is activity based accounting; ABC is a type of accounting system that us used to evaluate the cost of products and services in form of distributing it into different overheads of cost such as direct or fixed cost. The main purpose of this methodology is to divide or show the actual cost of every activity pertaining to the production, sales or distribution of the product or service as per its level of ...