CURRENT COST
ACCOUNTING METHODS
CHALLENGE FOR
ACCOUNTING PROFESSION
Lívia Rác, dr Györgyi Petkovics
Faculty of Economics, Subotica, Serbia
2008.10.02.
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
The place of cost accounting
Accounting
Financial acc.
Managerial acc.
bank
Cost accounting
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
Development of cost accounting
Traditional systems
- Actual costing
- Normal costing
- Standard costing
Modern systems
- Target costing
- Department c.
- Activity-based c.
- Variable c.
- BSC
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
Importance of cost calculation
How to assign indirect costs (tip for the waiter) to products?
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
Modern costing systems
- Target costing
- Department c.
- Activity-based c.
- Variable c.
- BSC
Modern costing systems
Target costing – focuses on target cost per unit, which is the
estimated unit cost of a product that, when sold at the target
price, enables organization to earn the target profit per unit.
- locked in = designed in costs
- cost incurrence
Department costing – instead of a single allocation base, uses
separate indirect-cost rates for each department. It
supposes that each department has different allocation base.
Modern costing systems
Activity-based costing – a technique for calculating object
costs, in the way that overhead, selling, general and
administrative costs assigned to an object reflect the overhead
services actually consumed by that object.
resources
General ledger cost data
activity
activity cost pools
cause-effect
cost object
(product, customer...)
relation
cost object
(product, customer...)
Modern costing systems
Activity-based costing
- every company has to determine its true economic costs
with understanding the costs relation to its products/services
- ABC is a simple concept that can be, and has to be
adopted in a wide variety of ways
Balanced Scorecard concept – translates a company’s strategy
into a comprehensive set of performance measures.
Financial
Customer
Internal bus.
process
Learning
and growth
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
Traditional vs. modern costing
Traditional costing
Activity-based costing
Only manufacturing costs are
assigned to products.
Manufacturing as well as nonmanufacturing costs can be
assigned to products (some
manufacturing costs may be
excluded from product costs).
Selling, general and
administrative expenses are
period expenses.
Selling, general and
administrative expenses can be
assigned to products if there is a
cost-effect relation between them.
Traditional vs. modern costing
Traditional costing
Activity-based costing
A single overhead rate is used for A number of overhead cost pools
the entire factory: direct labor- or exist, with different allocation
machine-hours.
bases.
Costs of unused capacity are
assigned to products too.
Costs of idle capacity are not
assigned to products (only the
costs of capacity they use).
Overview
• The place of cost accounting
• Development of cost accounting
• Importance of cost calculation
• Modern costing systems
• Traditional vs. modern costing
• Conclusion
Conclusion
- New expressions: idle capacity, cost pools, activity-based concept,
sunk cost, value- and non-value added costs, target pricing, relevant
costs, etc.
- most cost systems are based on financial accounting’s rules
because of:
- behavior problem
- financial problem
- technical problem
- there is a need for maintaining two cost systems parallel
Conclusion
- managers need a road map
- with modern costing methods company has to make a self-portrait
- ABC is a concept to adopt, not the system to install
- the accounting profession continuously has to improve costing
methods, to provide a true picture about the company’s cost
structure
“Far better an approximate answer to the right
question, than the exact answer to the wrong question.”
(John Tukey, Princeton University.)
liviar@eccf.su.ac.yu