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cost accounting

You have been invited to bid on an engagement to assist a new merchandising organization in developing its cost accounting systems. The CEO has moved up through the sales ranks and has little formal training in accounting or financial management. She plans to hire a CFO, but before doing so she has asked you, as part of your bid, to provide her with an understanding of the role cost accounting plays in business planning, control, and decision making. She also has asked that you provide an assessment of the role of ethics in cost accounting; she feels she needs to understand the impact of ethics before she hires her CFO. In addition, she has read some material she found on the Internet about variable and absorption costing. She is unclear as to the difference between and implications of these two concepts. She has asked that in your response you compare and contrast these two methods, including examples to help her understand the implications of them.

1. Address the three main areas the CEO has asked you to address, including appropriate citations and examples as requested with the following:
a. Assess the role of cost accounting in helping management plan, make decisions, and control the organization.
b. In light of the post-Enron, Sarbanes-Oxley world, assess the role of ethics in cost accounting.
c. Compare and contrast absorption and variable costing. What information does each include, and what information is missing from each approach?

Solution Preview

a. Assess the role of cost accounting in helping management plan, make decisions, and control the organization.

Cost accounting is valuable to an organization if it significantly improves the decision making process within the organization by providing accurate and timely input regarding the cost behavior in organizations. Cost accounting is also valuable in conducting performance evaluations.

Thus, cost accounting is valuable if it can result in reduction of costs and improvement in efficiency and productivity as well as aid in future decision making.

In the recent past, cost accounting was often the tool used to calculate an inventory cost for balance sheet presentation and to calculate the cost of goods sold for the income statement. Today cost accounting is much more than an inventory cost tracking system. Cost accounting involves determining the costs of products and activities, but it does have a broader role: to furnish management with information used in planning and controlling activities, ...

Solution Summary

Assess the role of cost accounting in helping management plan, make decisions, and control the organization.

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