d.). The methods by which this information is gathered will differ based on the type of production that is being undertaken. Cost flow assumptions relates to how costs flow through inventory accounts. This can include FIFO, LIFO, weighted average and other methods. This impacts the costs because it helps to determine which costs are counted for which period. Recording interval capability refers to the points in time when a company takes inventory. Many firms use perpetual inventory, but some firms will take inventory periodically in order to provide this information.
Overall, cost accounting systems provide the information that managers need with respect to the costs of a product. By using a specific system, wherein decisions about methodology are made about each of the five parts of the cost accounting system, the system will be consistent through different products and through different time periods for the same product. This will ensure that costs are not allocated twice, or have failed to have been allocated. It will...
The purposes for which cost accounting is used -- keeping or cutting a product, placing production emphasis on one product over another, or making changes to the production process of a product -- all depend on having information that is reliable and comparable. Without that, the managers making such decisions will be at risk for making the wrong decision. It is important, then, that every company employ a cost accounting system that develops methods for gathering and compiling cost information.
Works Cited:
Kinney, M. & Raiborn, C. (2009). Cost accounting: Foundations and evolutions. Mason, OH: Thomson Higher Education.
Martin, J. (no date). What is a cost accounting system? Management and Accounting Web. Retrieved June 23, 2010 from http://maaw.info/5partsofcostsystem.htm
Cooper, R. & Kaplan, R. (1988). How cost accounting distorts product costs. Management Accounting. Vol. 69 (10) 20.
