Cost Management Accounting

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Cost Management Accounting

Table of Contents

Cost Management Accounting2


Pricing Policies3

Accounting System3

Financial Statements4

The Use Of Financial Statements5

Management Interest In Financial Statements5

Integrity And Ethics7

Standard Costing and Variance Analysis in Management Accounting9

Execution And Purpose Of Standard Costing10

Establishment Of Standards10

Tolerance Limits For Variance Control11

Fuzzy Forecast12

Managerial Meanings Of Standards13

Cost Consciousness13

Negative Effect Of Loose Standards14

Dysfunction Of Rigid Standards14

Proper Standards16

Advantages and Disadvantages of Activity Based Costing System17



Cost Management Accounting


How much to charge for a product or service depends on a multitude of factors such as competition, cost, advertising, and sales promotion. Economic theory suggests that the best price for a product or service is the one that maximizes the difference between total revenue and total costs. However, in reality, the price charged is usually some form of cost-plus, which is later adjusted for market conditions and competition.

Pricing Policies

Setting appropriate prices is one of the manager's most difficult day-to-day decisions. The art of price setting depends on a manger's ability to read the marketplace and anticipate customer reaction to a product and it price. Some of the objectives of a pricing policy include:

Identifying and adhering to both short-run and long-run strategies

Maximizing profits

Maintaining or gaining market share

Setting socially responsible prices

Maintaining a minimum rate of return on investment

Being customer-driven

Accounting System

Most business organizations have an accounting system for preparing financial statements, income tax returns, reports to managers, and bills to customers, and other types of accounting information. An accounting system consists of the personnel, procedures, devices and records used by an entity in developing accounting information and communicating it to decision makers. Accounting systems often make use of computers and other electronic devices, as well as handwritten forms and records. In fact the accounting system of any large organization includes all of these components (Gaumnitz and Kollaritsch 2001 24-28). In every accounting system the economic activities of organization are recorded in the accounting records. Next the recorded data are classified within the system to accumulate subtotals for various types of economic activities. Finally the information is summarized in accounting reports designed to meet the information needs of various decision makers, such as investors, mangers and government agencies.

Financial Statements

The preparation of financial statement is not the first step in the accounting process but it is logical point to begin the study of accounting. Financial statements convey to management and to interested outsiders a concise picture of profitability and financial position of business. Theses statements each less than a page in length summarize thousands or even millions of transactions recorded during the year in the company's accounting system (Simons 2007 357-374). Thus financial statements are the end product of accounting process.

The Use Of Financial Statements

Most out side decision maker use financial statements to make decisions. That is in selecting those companies in which they will invest resources or to which they will extend credit. For this reasons financials statements are designed to help investors in taking correct decision.

Management Interest In Financial Statements

The management of a business organization is vitally concerned with the financial position of the business and also with its ...
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