The Role of Cost Accounting in Business Planning, Control, and Essay

The Role of Cost Accounting in Business Planning, Control, and Decision Making - Essay Example Modern cost accounting is being termed as management accounting, since managers being the primary user of accounting information are increasingly using the data provided by the accounts, setting objectives and controlling the operations of the business. 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, in improving quality and efficiency, and in formulating strategic policy. To be more specific, cost accounting can help management achieve the following: †¢ Formulating and implementing plans and budgets that motivate employees toward the achievement of company goals. †¢ Establishing cost tracking methods that allow control of operations, cost savings and improvement in quality. †¢ Controlling inventory cost, minimizing inventory investment, and determining the cost of each product or service. †¢ Pricing products and services in ways that are congruent with organizational goals. †¢ Making prudent decisions that impact both short-term and long-term revenues and expanses. Technological changes and management innovations are drastically changing the nature of costs. Many technologically advanced companies have lower inventory levels; use less labor and often experience increasing levels of fixed costs. These developments are interesting and exiting, but they are also challenging cost accounting systems to provide reliable, useful information, data that can be used to keep an organization efficient and most of all competitive in the global market. The cost and management accounting is responsible for generating financial information required by the firm for internal and external reporting. This involves responsibility for collecting, processing and reporting information that will help managers in their planning, controlling and other decision making activities (Hanson & Mowen, 2005). The detailed formulation of future actions to achieve a particular end in the management activity called planning. Planning therefore requires setting objectives and identi fying methods to achieve those objectives. An organization may have the objective of increasing its short term and long-term profitability by improving the overall quality of its products. By improving product quality, the organization should be able to reduce scrap and rework, decrease the number of customer complaints and the amount of warranty work, reduce the resources currently assigned to inspection and so on, thus increasing profitability. This is accomplished by working with suppliers to improve the quality of incoming raw materials, establishing quality control circles, and studying defects to ascertain their causes. So cost accounting plays major role in management planning and control of organization. Similarly cost accounting plays effective role in the decision making process in the organization as well. The process of choosing among competing alternatives is decision making. Decision can be improved if information about the alternative is gathered and made