Article Review: Practical Issues in Managerial Cost Accounting
The article examines the cost accounting in the modern context and concentrates on its application at the managerial level. The position of the authors is that cost accounting is essential in the managerial operations. In the discussion, the authors bring out the fact that costs accounting as a disciple is essential not in external reporting but for the internal consumption of the organization. The authors conclude the paper by advocating for the need to apply cost accounting knowledge and information on day to day managerial practises hence the title, practical issues in managerial costs accounting. The paper shall summarise the content of the mentioned article. It is this paper’s contention that cost accounting though internal in origin and application, is important for the overall accounting process in the organization.
The article begins by briefly examining the nature of cost accounting. The authors demonstrate the difference between cost accounting and external accounting. It is the position of the authors that external accounting, which is meant for consumption by third parties, is rigid and formal when compared to cost accounting. The fact that the information is meant for consumption by third parties who in most cases do not have a clear understanding of accounting makes external reporting formal and predictable. However, that characteristic is rare in cost accounting. The authors observe that cost accounting is often for the consumption of the internal staff. It particularly targets the internal management. In that vein, it is argued that cost accounting does not assume a definite form. Rather, it entertains a degree of informality to the convenience and understanding of the internal management. This element makes cost accounting more practical and realistic. In the same breadth, it occasions a situation where costs accountants adopt the best form for the organization given the prevailing needs and concerns. In the overall, this makes costs accounting more dynamic and less predictable.
Secondly, the authors observe another practical issue that separates cost accounting from external reporting. The issue of compliance is seen as a clear determinant to discriminate between cost accounting and external reporting. In external reporting, the statements and accounts are prepared in compliance with statutory or other legal duties. Some of the legal duties are imposed on the firms by the Securities and Exchanges Act, the Generally Accepted Accounting Standards (GAAS) and the provisions of the Public Accounting Oversight Board. On the other hand, for cost accounting, the motivation lies in production of managerial accounting tools and information. This output is for the sole consumption of the internal management and as such is often exempted from compliance. Moreover, it should be noted that in external reporting, the statements have a compulsory and mandatory character while cost accounting is voluntary and purely for the sake of convenient operations of the firm.
Other than purpose, the authors also examine the issue of methodology. They observe that for the cost accounting, the methodology used is more technical but less formal. In addition, the approach used does not necessarily inform the approach applied in the following assignment. In other words, in cost accounting, different methodologies are used in appreciation of the context and the task at hand. This differentiates cost accounting from external reporting. The latter dictates for the same approach to be applied consistently. In the long run, cost accounting comes out as a working framework that facilitates the overall functions of the management.
In conclusion, the authors in the article give a strong case for the application of costs accounting in day to day management. The paper examines the fundamental differences between cost accounting and external reporting. In the long run, the authors argue for the application of cost accounting at the managerial level. The paper gives a breadth of life to the application of cost accounting techniques in day to day life that includes both individual and group decision making. It brings out the need for internal as well as external reporting.
Works Cited
Gieger, Dale R. "Practical Issues in Managerial Cost Accounting." California State University Business Journal (2009): 1-13.
