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Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman
Edition 7ISBN: 978-0078136726Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman
Edition 7ISBN: 978-0078136726 Exercise 2
One Cost System Isn't Enough
Robert S. Kaplan in "One Cost System Isn't Enough" ( Harvard Business Review, January-February 1988, pp. 61-66) states,
No single system can adequately answer the demands made by diverse functions of cost systems. While companies can use one method to capture all their detailed transactions data, the processing of this information for diverse purposes and audiences demands separate, customized development. Companies that try to satisfy all the needs for cost information with a single system have discovered they can't perform important managerial functions adequately. Moreover, systems that work well for one company may fail in a different environment. Each company has to design methods that make sense for its particular products and processes.
Of course, an argument for expanding the number of cost systems conflicts with a strongly ingrained financial culture to have only one measurement system for everyone.
Critically evaluate the preceding quote.
Robert S. Kaplan in "One Cost System Isn't Enough" ( Harvard Business Review, January-February 1988, pp. 61-66) states,
No single system can adequately answer the demands made by diverse functions of cost systems. While companies can use one method to capture all their detailed transactions data, the processing of this information for diverse purposes and audiences demands separate, customized development. Companies that try to satisfy all the needs for cost information with a single system have discovered they can't perform important managerial functions adequately. Moreover, systems that work well for one company may fail in a different environment. Each company has to design methods that make sense for its particular products and processes.
Of course, an argument for expanding the number of cost systems conflicts with a strongly ingrained financial culture to have only one measurement system for everyone.
Critically evaluate the preceding quote.
Explanation
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Cost Accounting System:
The cost accounting system is developed to maintain the cost-related information in the books of cost accounts. Cost accounting is developed after understanding the cost structure in the company i.e. cost value, cost classification, timing of payment, timing of cost incurrence, and the costing system for product or service followed i.e. process costing, job-order costing, traditional costing, activity-based costing, and variable costing. The cost accounting system also depends on the attitude of management towards quality development i.e. TQM approach, the Six-sigma approach, or the traditional approach followed.
A uniform cost accounting system could not be developed for all companies due to the following reasons: -
(1) Different companies allocate and classify the cost on a different basis.
(2) The different quality management approach is followed by different companies.
(3) Different companies follow different processes for production or providing services.
(4) The method of production and service performance and timing for it is different for different companies.
(5) The payment and receipt cycle and the financial need of each company are different for each company.
The cost accounting system is developed to maintain the cost-related information in the books of cost accounts. Cost accounting is developed after understanding the cost structure in the company i.e. cost value, cost classification, timing of payment, timing of cost incurrence, and the costing system for product or service followed i.e. process costing, job-order costing, traditional costing, activity-based costing, and variable costing. The cost accounting system also depends on the attitude of management towards quality development i.e. TQM approach, the Six-sigma approach, or the traditional approach followed.
A uniform cost accounting system could not be developed for all companies due to the following reasons: -
(1) Different companies allocate and classify the cost on a different basis.
(2) The different quality management approach is followed by different companies.
(3) Different companies follow different processes for production or providing services.
(4) The method of production and service performance and timing for it is different for different companies.
(5) The payment and receipt cycle and the financial need of each company are different for each company.
Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman
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