The Essential Controller: An Introduction to What Every Financial Manager Must Know, Second Edition

CHAPTER 5

Cost Accounting and Costing Systems*

Importance of This Chapter

Though the new controller will initially be judged based on the quality and timeliness of his financial statements, he can bring considerable value to the company over the long term with a thorough knowledge of the cost accounting concepts described in this chapter. By applying different costing systems to different situations, there is an excellent opportunity to focus management attention on the systematic improvement of profitability.

Cost accounting is one of the most crucial aspects of the accounting profession, for it is a key means by which the accounting department transmits company-related performance information to the management team. A properly organized cost accounting function can give valuable feedback regarding the impact of product pricing, cost trends, the performance of cost and profit centers, and production and personnel capacity, and it can even contribute to some degree to the formulation of company strategy. However, many controllers rarely give due consideration to the multitude of uses to which cost accounting can be put. Instead, they think only of how cost accounting will feed information into the financial statements, since their primary focus is on the financial statements. In this chapter, we will focus on how you can collect data, summarize it, and report it to management with the goal of helping the management team to run the business.

PURPOSE OF COST ACCOUNTING INFORMATION ...