Accounting Category: Cost accounting and analysis

Accounting Articles

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffet. Reputation is very important for organizations because it leads to a sustained competitive advantage by making the organization more attractive to its stakeholders (e.g., customers, employees, suppliers, business partners). There are multiple factors that can destroy reputation. One of them is low-quality products and services. In this article, we will discuss costs that are reported as part of cost of quality reporting.

In accounting, there are a lot of costing methods, and it may be overwhelming to know how they relate to each other. In this article, we discuss various costing methods: job costing, process costing, standard costing, absorption costing, variable costing, throughput costing, activity-based costing, target costing, and kaizen costing.

Many organizations require employees to keep track of time spent on various job-related tasks and activities. Such information can be used not only for compensation purposes but also to evaluate individual and divisional performance. In this accounting tutorial, we will look at an example of how employee time data can be used to assess capacity, the cost of idle capacity, and the cost of products or services.

Cost savings are important for all organizations regardless of their industry, business model, or strategy. While cost savings are especially important for companies that rely on the cost leadership strategy and those in the mature life cycle stage, organizations that pursue differentiation strategy can still benefit from cost saving opportunities. In this article, we will discuss how cost hierarchy can be used to identify opportunities to save costs.

In this short tutorial, we will compare nominal and effective prices. Then, we will use the concept of effective price to compare suppliers.

Transfer pricing is an important topic for top management, accounting and finance departments, and financial auditors, especially among multinational corporations. Transfer pricing is important for at least two reasons: performance evaluation of business units or segments; and tax strategy. There are several methods that can be used to calculate an optimal transfer price. In this tutorial, we review these methods and provide examples.

Intercompany transfer pricing is a large area of attention for top management, chief financial officers, finance directors, auditors, and others within organizations with multiple business units or subsidiaries. In this accounting tutorial, we take a look at what transfer pricing is, why intercompany transfer pricing is important, different transfer pricing methods, and the tax implications of transfer pricing.

Organizations need to estimate costs to make pricing decisions, manage expenditures and investments, forecast litigation outcomes, bid for government contracts, and so on. The common methods used to estimate costs include: account analysis, statistical analysis, and engineering analysis. In this article, we will review an example of account analysis.

Cost estimation is a process of estimating (predicting) the cost of a cost object. A cost object is anything we are interested in estimating or calculating a cost for. Examples of cost objects include products, services, projects, activities, business units, product lines, customers, suppliers, and so on. Before we discuss common cost estimation methodologies and tools, we need to understand the reasons for cost estimation.

“Can we decrease the selling price of a product and stay profitable?” “Should we purchase a component part from a supplier in Mexico, Canada, China, or the EU, or should we manufacture it locally?" “How much would it cost us to manufacturer a product?” “What is the estimated profit of our North American division next year?” “How much in advertising expenditures can we budget for the next quarter?” “How much should we bid for a federal construction project?" “What is the anticipated cost of a litigation case?" … The list of questions managers face in their daily decisions is infinite. Managers are paid to manage people and make decisions. Many decisions are forward-looking and require an estimate of future benefits and costs. This is called a cost-benefit analysis. Often the cost-benefit analysis involves the comparison of a few alternative courses of actions, but sometimes it can be used to evaluate just one scenario.

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