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CHAPTER 1
INTRODUCTION TO COST ACCOUNTING
QUESTIONS
1. Management accounting stresses the informational needs of internal users over those of external users (the focus of financial accounting). Because of this perspective, management accounting provides information in a format that is flexible and relevant to a particular manager’s usage. Financial accounting, on the other hand, must provide some uniformity in the manner in which information is presented for it to be comparable among companies and in compliance with generally accepted accounting principles.
2. It is more important to have legally binding cost accounting standards for defense contractors than for other manufacturers because government contracts are often awarded on a low-bid basis. Without legally binding cost accounting standards, different bidders could include costs in different categories, making the bids noncomparable. With specified cost accounting standards, there is a higher probability (although not absolute certainty) that comparison among bids is consistent. Although contracts for non-government manufacturers may be awarded on a bid basis, it is more common in this arena to consider a wide variety of factors in addition to cost.
3. Operating in a global environment means that more decision and control variables must be tracked. For example, a firm operating in many countries must track variables such as national rules of income taxation, national corporate governance laws, sets of local laws of commerce, production and sourcing sites, and currencies. In addition, the multinational firm must monitor markets in many countries, deal with a multitude of local cultures and customs, and communicate in several languages.
Some other valuable information for the global firm would be: currency exchange rates; national inflation rates; details of import/export laws; prices for commodities in likely sourcing sites; distribution costs for various
INTRODUCTION TO COST ACCOUNTING
QUESTIONS
1. Management accounting stresses the informational needs of internal users over those of external users (the focus of financial accounting). Because of this perspective, management accounting provides information in a format that is flexible and relevant to a particular manager’s usage. Financial accounting, on the other hand, must provide some uniformity in the manner in which information is presented for it to be comparable among companies and in compliance with generally accepted accounting principles.
2. It is more important to have legally binding cost accounting standards for defense contractors than for other manufacturers because government contracts are often awarded on a low-bid basis. Without legally binding cost accounting standards, different bidders could include costs in different categories, making the bids noncomparable. With specified cost accounting standards, there is a higher probability (although not absolute certainty) that comparison among bids is consistent. Although contracts for non-government manufacturers may be awarded on a bid basis, it is more common in this arena to consider a wide variety of factors in addition to cost.
3. Operating in a global environment means that more decision and control variables must be tracked. For example, a firm operating in many countries must track variables such as national rules of income taxation, national corporate governance laws, sets of local laws of commerce, production and sourcing sites, and currencies. In addition, the multinational firm must monitor markets in many countries, deal with a multitude of local cultures and customs, and communicate in several languages.
Some other valuable information for the global firm would be: currency exchange rates; national inflation rates; details of import/export laws; prices for commodities in likely sourcing sites; distribution costs for various