For many firms, the cost accounting requirements of generally accepted accounting principles are overwhelming. Further, it seems like information provided by financial accounting reports doesn’t really help managers make decisions – it lacks timeliness and detail that most managers need, and isn’t customized to their decisions. This is because GAAP requirements are for the benefits of financial report users outside the firm – constituents like shareholders, creditors, and other regulatory agencies. GAAP provides little information about how to organize cost information for internal-decision making.
Managers can rarely make decisions to improve operations or implement a new strategy without considering a multitude of factors, including costs. Without understanding the costs associated with a decision, a manger will not be able to understand whether if he or she has made a successful decision with benefits that are truly worth it. But long before managers make good decision, firms must decide how they will account for, organize, and deliver cost information to decision makers. Having the right costing system for your firm can make the difference between the decision appearing worthwhile or not.
The problem then becomes “what type of costing system should I use?”
Given the wide variety of business decisions, as well as substantial differences in strategies, operations, and organizational cultures, your company faces many choices for organizing your cost information, such as:
- What type of product do we produce—large volumes of similar products or customized products?
- Can we set our own prices for products or must we adhere to a market price?
- Other firms seem to compete on different products. Do we have the wrong priorities?
- How do we measure the effectiveness and efficiency of our capacity?
- Is there an easier way to perform our accounting requirements?
Knowing that the answers to these questions influence the type of costing system from which your company can most benefit, how does your company address these issues? Could your company improve on any aspect? The Accenture Academy course Introduction to Costing Systems can help you to recognize the many costing systems available and the benefits that each system could bring to your firm.