January 10th, 2018
Discuss how management should use cost accounting systems to improve the firm’s value chain.
Cost accounting systems offer management a way to determine the cost associated with each activity of the firm. By providing this information, cost accounting enables managers to evaluate processes that are inefficient and find a way to improve such processes based on the available options. Analysis of an entity’s processes can, for instance, reveal existing excess capacity that can be put into productive activities. Similarly, through cost analysis, an entity’s management can identify whether to halt a specific product or continue producing it due to the synergies it brings in the production of other profitable products. By providing information about the cost of various activities, cost accounting can thus help to improve a firm’s value chain since it will highlight areas of the value chain that are inefficiently ran.
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