Assignment no. 2
Accounting for Management (MB 103)
MBA 1st Semester Aug-Nov 2011
Topic – “Role of cost accounting in managerial decision making”
Team Name: “Brighter Brand”
Team Members:
24 - Gittika Mital (A) covered – Introduction
87 – Nidhi (B) covered – Discussion
151 – Pooja Pallavi (C) covered – Conclusion
“Role of cost accounting in managerial decision making”
Introduction:
Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization. Managers use cost accounting to support decision making to reduce a company's costs and improve its profitability. As a form of management accounting, cost accounting need not follow standards such as GAAP, because its primary use is for internal managers, rather than external auditors, and what to compute is instead decided pragmatically.
Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as translating the Supply Chain (the series of events in the production process that, in concert, result in a product) into financial values.
Discussion:
Cost accounting has long been used to help managers understand the costs of running a business. Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs to help business owners and managers make decisions.
In the early industrial age, most of the costs incurred by a business were what modern accountants call "variable costs" because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, etc. in direct proportion to production.
Managers could simply total the variable costs for a product and use this as a rough guide for decision-making processes. Some costs tend to remain the same even during busy periods, unlike variable costs which rise and fall with volume of work. Over time, the importance of these "fixed costs" has become more important to managers. Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments such as maintenance, tooling, production control, purchasing, quality control, storage and handling, plant supervision and engineering.
In the early twentieth century, these costs were of little importance to most businesses. However, in the twenty-first century, these costs are often more important than the variable cost of a product, and allocating them to a broad range of products can lead to bad decision making. Managers must understand fixed costs in order to make decisions about products and pricing.
Conclusion:
The success of the business depends primarily upon the skill and abilities of management. Management can through its actions (decisions) influence and control events within limits. A primary objective of decision making is to achieve optimum utilization of the business’s capital or resources. Effective decision making requires relevant information and special analysis of data.
Cost accounting is a branch that establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. It is essential as it help managers understand the costs of running a business.
Decision-making skills can help owners and managers choose the best business opportunity in the cost-management process. Cost-management techniques gather and report information relating to the company's production process and other operating costs. Owners and managers must take the next step and make decisions to cut down on lengthy discussions or explanations.
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REFERENCE:
2) From Wikipedia, the free encyclopedia.
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Submitted to: Submitted by:
Gurdeepak sir Pooja Pallavi
Regards.
very good attempt...... Keep it up...
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