Answers to exam & review questions

Cost/Management Accounting notes

Cost accounting is utilized for a number of purposes, some of which are briefly described in the following points:
a) Accounting for costs
This may be seen as a record keeping or score keeping role. Information must be gathered and analyzed in a manner which will help in planning, control and decision making.

b) Planning and Budgeting
This involves the quantification of plans for the future operations of the enterprise; such plans may be for the long or short term, for the enterprise as a whole or for the individual aspects of the enterprise.

c) Control of the operations of the enterprise
Control may be assisted by the comparison of actual cost information with that included in the plan. Any differences between planned and actual events can be investigated and corrective action implemented as appropriate.

d) Decision Making
Cost accounting information assists in the making of decisions about the future operations of the enterprise; such decisions making may be assisted by the information from cost techniques and cost-volume – profit analysis.

e) Resource allocation decisions
For example, product pricing in determining whether to accept or reject jobs: This is
based on cost and revenue implications of the relevant decisions

f) Performance evaluation
Cost accounting information is used to measure and evaluate actual performance so as to make a decision of the degree of optimality or efficiency of resource utilization.

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