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  • Cost Accounting: The Limitations of

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    Javier Romero
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    Cost accounting has limitations including a lack of uniformity between systems, conceptual diversity in how costs are defined and allocated, high implementation costs, an inability to predict future costs, and that it is still developing as a field. It records and reports costs to help management efficiently operate businesses and control, compute, and reduce costs to maximize profits. However, cost accounting systems do not always provide a clear make-or-buy decision, as shown in the example where making blocks in-house was cheaper for 100,000 units but more expensive for 150,000 units than buying from an external supplier.

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    Limitations of cost accounting

    Original Title

    Cost Accounting

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    Cost accounting has limitations including a lack of uniformity between systems, conceptual diversity in how costs are defined and allocated, high implementation costs, an inability to predict future costs, and that it is still developing as a field. It records and reports costs to help management efficiently operate businesses and control, compute, and reduce costs to maximize profits. However, cost accounting systems do not always provide a clear make-or-buy decision, as shown in the example where making blocks in-house was cheaper for 100,000 units but more expensive for 150,000 units than buying from an external supplier.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    9 views7 pages

    Cost Accounting: The Limitations of

    Uploaded by

    Javier Romero
    Cost accounting has limitations including a lack of uniformity between systems, conceptual diversity in how costs are defined and allocated, high implementation costs, an inability to predict future costs, and that it is still developing as a field. It records and reports costs to help management efficiently operate businesses and control, compute, and reduce costs to maximize profits. However, cost accounting systems do not always provide a clear make-or-buy decision, as shown in the example where making blocks in-house was cheaper for 100,000 units but more expensive for 150,000 units than buying from an external supplier.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 7

    THE LIMITATIONS OF

    COST ACCOUNTING
    What is Cost Accounting?

    Cost Accounting Definition:

    Cost accounting is the recording and


    reporting the costs of manufactured goods
    and performing services to assist
    management on how to efficiently operate
    the business.
    What is the objective of Cost Accounting?

    Cost Accounting Objectives.


    Cost Control: Control costs within budget
    plan for a particular product

    Cost Computation: Function which


    records, allocates, and classifies expenses

    Cost Reduction: Assists management in


    reducing costs on projects to maximize
    profits
    What are the limitations of Cost
    Accounting?
    Lack of uniformity.

    Conceptual diversity.

    Costly.

    Ignorance of futuristic situation.

    Lack of double entry systems

    Developing stage
    Make or Buy Decision Example
    Current supplier is selling the company blocks at $1.15 per unit

    Cost Item Per Unit Cost Total Cost of 100,000


    Direct Labor $0.40 $40,000.00
    Direct Material $0.50 $50,000.00
    Variable Overhead $0.10 $10,000.00
    Block Machine $20,000.00
    Total Cost 120,000.00

    To Make: 120,000.00
    To Buy: 115,000.00
    Make or Buy Decision Example
    Current supplier is selling the company blocks at $1.15 per unit

    Cost Item Per Unit Cost Total Cost of 150,000


    Direct Labor $0.40 $60,000.00
    Direct Material $0.50 $75,000.00
    Variable Overhead $0.10 $15,000.00
    Block Machine $20,000.00
    Total Cost 170,000.00

    To Make: 170,000.00
    To Buy: 172,500.00
    THANK YOU

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