SCOPE OF COST ACCOUNTING

Cost accounting is generally considered applicable only to manufacturing operations. This opinion is not valid in today's economy; every type and kind of activity, regardless of size, in which monetary value is involved, should consider the use of cost accounting concepts and techniques. Non manufacturing activities of manufacturing firms, wholesale and retail businesses, banks and other financial enterprises, insurance companies, transportation compa­nies, railroads, airlines, shipping companies, bus companies, schools, colleges and universities, hospitals, governmental units on local, state, or federal levels, churches, and welfare organizations — all should employ cost ac­counting in order to operate efficiently.)These many types are not considered individually in this text; however, at appropriate places, mention will be made regarding the use of specific costing concepts and techniques in certain of these activities. In other cases it is a matter of recognition by the management and its accounting staff of the applicability of these concepts and techniques to their own special non manufacturing and nonprofit fields of endeavor.

THE COST DEPARTMENT

The cost department is responsible for keeping records associated with the accounting for manufacturing and non manufacturing activities. To attain the greatest usefulness, the cost department must not only record but also analyze all costs of manufacturing, marketing, and administration for use by management in planning and control. It must, in addition, issue significant control reports and other decision-making data to executives, superinten­dents, and department heads, which assist in controlling and improving costs and operations. The need for the prompt issuance of reports and statements must alert the accountant to modern developments and techniques in the field of communications. Information transmittal problems have too often been overlooked or neglected. Cost control needs or profit opportunities have been delayed or missed because of poor communication. The analysis of costs and the preparation of reports are greatly facilitated through proper sectioning of functions generally listed under the cost department. Proper coordination is also needed, with other functions closely allied with cost accounting, for whⁱch separate departments or sections are often set up; namely, planning and cost analysis and general accounting activities. These functional units should come under the supervision of the controller.

The performance of the functions of the cost department involves the past, present, and future. In profit measurement, as evidenced in the income statement, the accountant is primarily concerned with the proper recording and presentation of costs and revenue for operations and transactions already experienced. When issuing cost control reports, the accountant is working in the present rather than in the past. In developing costs for planning and deci­sion-making purposes, the accountant is concerned with the future.

RELATIONSHIP OF THE COST DEPARTMENT TO OTHER DEPARTMENTS:

The manufacturing departments, under the direction of factory superin­tendents and engineers, design, plan, and control products to their finished stage. In research and design, cost estimates are needed for each type of material, each item of labor, and each machine process before an intelligent decision can be reached in accepting or rejecting a design. Likewise, the scheduling, producing, and inspecting of jobs and products by the manufac­turing departments are measured for efficiency in terms of the costs incurred.

The personnel department interviews, screens, and selects employees for various job classifications. It keeps workers' personnel records and is inter­ested in keeping efficient and satisfied employees. The wage rates and the methods of remuneration agreed upon with the employee form the basis for the computation of the payroll.

The treasury department, responsible for the financial administration, relies upon accounting, budgeting, and related reports in scheduling cash re­quirements and expectations.

The marketing department needs a good product at a competitive price in its dealings with customers. While prices should not be set merely by adding a predetermined percentage to cost, cost cannot be ignored. Pertinent cost data give marketing managers information as to which products are most profitable and assist them greatly in determining sales policies.

The public relations department has the primary function of maintaining good relations between the company and the public in general, especially cus­tomers, stockholders, and employees. Points of friction are most likely to be prices, wages, profits, and dividends. The cost department is often called on to provide basic information for public releases concerning these policies and practices.

The legal department finds cost accounting helpful in keeping many af­fairs of the company in conformity with the law. The Federal Wage and Hour Law, terms of industry-wide union contracts, the Robinson-Patman Act, so­cial security taxes, unemployment compensation taxes, the Employee Retire­ment Income Security Act of 1974, as well as income tax, are some of the areas where the legal and cost departments need to cooperate.