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After taken our class, the four key topics in this course that I find interesting and helpful with regard to how a business operates include professional ethics, activity based costing, process costing, and inventory costing. Chapter 1 provides an overview of the accounting discipline covering management, financial, and cost accounting. Managers use the accounting disciplines to build, communicate, and implement business strategies for their stakeholders. They also coordinate production processes and sales decisions in order to make inventory decisions. Financial accounting dwells on reporting financial information to stakeholders such as suppliers, financial institutions, investors, and government agencies. On the other hand, the costing aspect evaluates, and analyses financial and non-financial information linked to the overhead cost of using different resources in a company.
Chapter 5 discusses activity-based costing commonly referred to as the ABC method. The chapter discusses how a business can over cost and under cost its products and services. The other four sections enlisted on the chapter include guidelines on how an organization refines its costing system, parts of cost hierarchy, advantages and cost of Activity Based Costing, and how the management can use activity-based management to run its operation. According to the course material, organizations apply plant overhead to produce products and services in a rational and systematic manner, using an average system. These kinds of average systems include the complex method, cost and benefits method, and Generally Accepted Accounting Principles (GAAP).
Chapter 17 discusses how companies embrace process costing, an accounting method where the unit cost of a company’s production is computed by assigning total expenditure to more similar units of their output. The system is normally used when an organization produces massive quantities of similar goods or services. The method is normally used in the chemical and food industry. The unit cost is computed by dividing the total cost by the number of outputs from the production process. Process costing separates costs into categories based on how they are introduced into the process costing system. It then combines their subsequent costs with conversion costs. Such combinations reflect the process of manufacturing products in which the manufacturing process is very hard to separate from one process to the other.
Chapter 9 discusses how an organization can use inventory costing, a system where all direct and indirect costs are categorized as inventoriable costs. They are then recorded in the financial statement as period expenses. Businesses prefer this kind of system because they believe that the process provides a better incentive to an organization. However, the process is known to create a single problem; it computes different figures for net revenues and net profits, which makes it difficult for an organization to make profitability related decisions. The difference in net revenue arises from the operating income because of inconsistencies in fixed manufacturing costs. The degree of difference outlines the amount of fixed manufacturing cost recorded on the balance sheet as an inventory.
The topics have given me insights on how to operate a business. I am now able to analyze every direct and indirect cost incurred in an organization. As an entrepreneur, it helps me to make decisions on costs that contribute to profits and those that do not. I am also able to understand and realize whether an organization is able to cash in more than its cumulative cost. Further, the course has equipped me with knowledge on how to formulate future strategies for businesses. This is because re-planning business strategies is very important in every venture given that they are incomplete without the right financial information about an organization. Further, knowledge of cost accounting principles helps me to understand when profit margin is missing.
Some of the materials I wish were covered include how to prepare a master budget and organizational decision making. Budget mastering and making decisions in an organization goes hand in hand with cost accounting. This is because cost accounting makes the budgeting process simple. No business can operate without a budget in mind. Cost accounting statements help businesses forecast future business costs and make decisions based on them. For instance, if the cost is rising, then an organization can come up with proper estimates and decisions to plan their budget better.
Professional ethics, activity-based accounting, process costing, inventory costing, budget mastering, and decision making are important aspects of cost accounting. The concepts provide businesses with the right information they need to operate effectively. Rather than develop balance sheet based on liabilities and assets, companies use cost accounting methodologies to understand how their businesses operate and where they spend their revenue. The topics tend to focus on one product, activity or project and depend on the principle of integrating all costs falling within financial aspects of organizations.
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