Cost (Management) Accounting Adds Value to an Entity Research Paper

Cost (Management) Accounting Adds Value to an Entity - Research Paper ExampleVanderback)i Cost or managerial method of accounting is modern day use of goods and servicesful accounting technology that helps departments of a furrow in configuration of ways. Some of its major applications ar as under Inventory valuation Costing helps in deliberation of salute per unit. This cost per unit is employed to value inventory for financial rehearsal and other purposes. demean costs Costs associated with a crossway or service need to be recorded for the purposes of preparing income statement in revision to evaluate the performance of the department and comp both over the selected financial period. Pricing of products and go Cost per unit is helpful in the business to tag sale hurts to its products and services. For example, if the cost of a product comes to $1.10 per unit, the management of the business may decide to price the product at $1.50 per unit in order to earn a profit marg in of ?0.40 per unit. Decision making Cost information is useful for the business to make important ends regarding quantity of the production keeping in view demand of product unattached in the market. Most business decisions are cost related as the ultimate aim of any business is to earn maximum profits by reducing costs. Practical use of managerial (cost) accounting practices Target cost Target costing is an application of absorption costing. It involves put a rear end cost by subtracting desired profit from a competitive market price. Real world users include Sony, Toyota, and Swiss watchmakers, Swatch. In effect it is the opposite of conventional cost plus pricing. Sony target costing body got five stages which are target price setting, target margin setting use interactive growth and try to meet divisions long term profit objective, target cost setting which target cost is equal to target price minus target margin, and lastly is defined whether stem target is met or not. If group target is met, it will go to final stage which is final decision making.(Sony Corporation The Walkman Line)ii Target costing is in fact an adoption of absorption costing.Under absorption costing both fixed and variable costs are charged to product costs.(Rajasakeran V.)iiiAbsorption costing is invariably utilize by most companies in order to determine the full production cost per unit. In target costing Sony first estimate the merchandising price for a new product. Then ignore this price by its required level of profits. This provides a target cost figure for product designers to meet. Then it endeavours to reduce costs to provide a product that meets that target costs Marginal Costing Airlines generally use bare(a) cost concept. When an airline flies without passengers in its seats that revenue is lost forever. So rather than having a fixed price for all seats for a particular flight it will metamorphose its pricing based on how urgent the passenger wants to make the flight and how many seats are available. If the flight is partly booked it will reduce it slating prices in the last minute. Flying an supererogatory passenger will only cost the cost of an extra sandwich. As long as the ticket price is over this extra sandwich cost it will make a profit. (Skanda Kumarasangam)iv The airlines use marginal costing system. The marginal cost is the extra cost arising as a result of making and selling one more unit of product or service, or saving in the cost