During my college years, I took several classes that were either specifically on cost accounting or otherwise devoted a lot of time to the subject. The problems were always set up cleanly: “XYZ Corporation makes red, white, blue and orange widgets…” they would call out a standard material cost, direct labor, etc. When the real world rolls around, none of the questions seem clean anymore: Do we establish standard material costs based upon the proposals to customers, quotes from suppliers, or actual purchase orders? Do we consider freight-in or cost-of-quality items as part of the material standards? Were your answers to these questions feasible in every situation?
The more complex your company or process, the more colorful the cost accounting process becomes. However colorful, cost accounting adheres to basic principles that will guide the important decisions which should lead, ultimately, to accurate financial reporting. The details behind the final numbers, however, are as much art as they are science. Regardless of the level of art involved with getting from point A to point B, the Cost Accountant must KNOW the costs and be able to draw the road map for senior management to understand how you got from point A to point B and any significant detours along the way.
As I was writing this I realized that it was as much for people in Operations as much as it was for students of Accounting! The people who only want to know what they need in Accounting and don’t want to spend an entire semester and a few hundred dollars to do it!
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Includes costing examples with bills of materials, routers, costed BOM’s and more!.
What are the different cost accounting methods and how do they differ?
Why should Standard Cost accounting be used? What are the benefits?
How do I establish standard costs?
What are the components os a standard cost?
How do I analyze variances?
How does “Management by Variance” work?
All of these questions and more will be answered and you can have the answers now!
About the author?
John Leonard, MBA
With more than twenty years experience in accounting & finance, covering a half dozen companies, John has been in manufacturing, distribution, retail, transportation and financial services industries. He has seen companies with less than one inventory turn (enough inventory to last more than a year) as well as greater than 24 turns (less than two weeks worth of inventory). He has been in situations with over 120 days in Accounts Receivable (four months worth of sales) and has been in organizations where there was Hell to pay if Accounts Receivable was less than 93% under 30 days.
John has been in organizations where a larger parent company manages all of the cash and has been in the position of looking between the seat cushions for change to make payroll. He prefers the former.
John has a Bachelor of Science degree in Business Administration with a Concentration in Accounting and graduated with honors from Biola University with a Masters of Business Administration.