Cost Accounting: Its role and ethical considerations Essay -- Business

Cost Accounting: Its role and ethical considerations Introduction: Accounting is the process of identifying, measuring, and communicating economic information about an entity for the purpose of making decisions and informed judgements. The major areas of within the accounting are: Financial Accounting, Managerial Accounting/Cost Accounting and Auditing- Public Accounting Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of an entity and to support the management in planning and decision-making process. Cost accounting is the subset of managerial accounting and it helps management in determination and accumulation of product, process or service cost. Role of Cost Accounting: Increased competition and uncertain business conditions have put significant pressure on corporate management to make informed business decisions and maximize their company?s financial performance. In response to this pressure, a range of management accounting tools and techniques has emerged. One of the most important tools that a management can use is - Cost Accounting. Cost accounting helps management in making strategic decisions by identifying an organization?s comparative strengths and weaknesses and a better ways to use, improve or eliminate them. Cost information is used for many different purposes:  · Performance measurement;  · Cost reduction and control;  · Determination of reimbursement and fee or price setting;  · Program authorization, modification, and discontinuation decisions; and  · Decisions to contract out work or make other changes in the methods of production or delivery of services. Cost accounting provides various tools for example: Cost-benefit analysis, break-even analysis, and CVP to help management in making decisions. Role of Ethics in Cost Accounting Webster's Dictionary defines ethics as "...the principles of conduct governing an individual or a profession: the discipline dealing with what is good or bad or right and wrong, or with moral duty and obligation; a particular theory or system of moral values". Ethics are very important in any field. In cost accounting also ethics play an important role. Ethical situations can easily arise in any business setting when money is involved. . The whole Enron saga was the result ... ...g is an important tool that can help management in making informed decision. Though it is not legally required but still it is necessary to run an entity effectively. Cost accounting is turned toward the future. There are different methods of costing in Cost Accounting: Absorption costing and Variable costing. Both have some merits over the other. An entity can use both of them for different uses. Absorption costing can be used for external reporting, managers need to review the effect of their decision on financial reporting to outsiders whereas Variable costing can be used by managers to review the effect of management decisions on production, costs and profits. References: Absorption, Variable, and Throughput Costing. Retrieved on December15, 2004 from http://www.kellogg.nwu.edu/faculty/balachan/htm/Acct439/Solutions/solution_manual19.doc Hilton, Ronald W: Cost Management: Strategies for Business Decisions, Second Edition: Marshall: Accounting, What the Numbers Mean, Sixth Edition: 3-8 Turner, Robert M: Ethics and professionalism: the CPA in industry, April1990. Retrieved on December15, 2004 from http://www.nysscpa.org/cpajournal/old/08416230.htm