CURRENT COST ACCOUNTING METHODS

1. CURRENT COST ACCOUNTING METHODS CHALLENGE FOR ACCOUNTING PROFESSION Lívia Rác, dr Györgyi Petkovics Faculty of Economics, Subotica, Serbia 2008.10.02.

2. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

3. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

4. The place of cost accounting Accounting Financial acc. Managerial acc. Cost accounting bank competitor government supplier customer

5. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

6. Development of cost accounting Traditional systems Modern systems • Target costing • Department c. • Activity-based c. • Variable c. • BSC - Actual costing - Normal costing - Standard costing

7. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

8. Importance of cost calculation How to assign indirect costs (tip for the waiter) to products?

9. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

10. Modern costing systems • Target costing • Department c. • Activity-based c. • Variable c. • BSC

11. 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.

12. resources General ledger cost data activity activity cost pools cost object (product, customer...) cost object (product, customer...) 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. cause-effect relation

13. 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. Internal bus. process Learning and growth Financial Customer

14. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

15. Traditional vs. modern costing

16. Traditional vs. modern costing

17. Overview • The place of cost accounting • Development of cost accounting • Importance of cost calculation • Modern costing systems • Traditional vs. modern costing • Conclusion

18. 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

19. 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

20. “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