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Cost accounting can be termed as a systematic procedure of recording as well as the measurement of the cost of any manufacturing goods. This strategy is helpful to assign a cost to different cost objects that generally include products of companies and services. Cost accounting can be termed an important factor in financial value calculation as it helps in determining the spending of money, earning, and loss of money. Application of the cost accounting practices in combination with the knowledge and skills of owners of SMEs has allowed for maintaining a better collaboration with the experts (Karagiorgoset al. 2020). Cost accounting is an effective aspect that provides detailed information about cost management for an organization through which effective control of the cost and financial aspects can easily be possible.
The case study indicates the review of the financial performance of Exciteco by Penco to determine whether its cost accounting system is functioning effectively or not. The insufficient practice of accounting in cost accounting includes the service of financial accounting that helps in providing information on cost over a long period (Flayyihet al. 2020). Therefore, advantages of the cost accounting concept include accurate ascertainment of cost, improves efficiency of the cost, and helping in maintaining an effective plan for the business budget along with guides in setting up a proper pricing strategy.
Features
Cost accounting includes different features that help in recording effective assets that can support the growth of a business. Cost accounting strategy contains different features using which present financial conditions along with the ability to change financial situations that can be determined easily in any business organization (Caruana et al. 2018). Cost accounting is generally a sub-field in accounting that supports the proper identification of financial aspects to make business decisions. The main aspect of cost accounting is an assessment of the total cost of accounting in production along with a comparison of the variable cost. Exciteco mainly manufactures different electronic components for which effective financial aspect management is required to maintain the resource management process for better productivity. Based on the provided case study, Exciteco has a well-established process of budgeting that helps in forecasting the sales of the products.
Cost accounting can be four types such as the activity-based strategy of accounting, a lean strategy of accounting, the standard method of accounting, and marginal cost. Cost accounting can be termed as a relevant tool that has the ability in providing information about the usage of the resources by a new business form (Pedro et al. 2018). This strategy is a beneficial process of improving the performance of a business form along with the maintenance of competitive performance. Standard accounting includes the process of comparing cost with production whereas marginal costing is the conversion of all costs into fixed costs with maintaining variable costs. The cycle of cost accounting includes six steps such as recording of cost data, classification of the respective cost, determination of total cost, unit cost management, management of selling price, and controlling of cost. The presence of features such as price-fixing, management of unit price of products along identification of wastages is exclusive features of cost accounting. Therefore, Exciteco can utilize those features of cost accounting to make financial performance more accurate by eliminating unnecessary hazards.
Importance
Cost accounting is an important financial aspect for any business organization as it helps in the identification of the money spent along with the possibility of financial loss for an organization. An organization needs to have two important cost accuracy systems such as a modified system of cost accounting and the accrual strategy of accounting (Labrador and Olmo, 2019). The objectives for which cost accounting can be selected by a business organization such as Exciteco's fixation on the receptive selling price, recording of the cost-rejected data effectively along with management of finance-related measurement efficiency. Further, the reduction of prediction cist song with controlling the cost to manage effective financial performance helps in the improvement of business performance. According to Ciuhureanu (2018), cost accounting can be termed as the qualitative approach that refers to cost along with the management of accounting operations through which effective cost planning can be done by any business organization.
Based on the case study provided here, Exciteco has a well-established system of budgeting in which divisional managers provide forecasts of the sales of electronic components in markets. The planning of Exciteco indicates that the budget is approved generally at the start of the accounting year in which the board does not attempt to tolerate the failure of planned financial planning. Balancing the budget of any fiscal year is an important aspect of maintaining the strategic growth of an organization (Forbes, 2021). However, the issue indicates that divisional managers have launched a complaint against the accurate time manager for budgeting which creates issues for Exciteco to manage the budget effectively. Therefore, based on the case study it is observed that managers in the division have failed in anticipating the high popularity of the completely new smartphones that are made based on the modification of technologies.
Improper planned financial strategy by Exciteco's P division has caused a large production of the newly modeled technology-improved smartphones that need to be sold by providing effective discounts to maintain a planned volume of sales. Maintaining sustainability in business is an important aspect of the continuation of the success of a business in any environment (Mio et al. 2020). Therefore, the environment in which the P division of Exciteco has established its business is not a suitable one to maintain proper business functionality in terms of sales and production. During the reopening of the customer's factory, it is identified from the case study that Exciteco has reallocated their P division which has caused the loss of prestigious suppliers who can maintain the supply chain of the products. Networks of supply chains are a complex thing in which accuracy in the delivery of goods at the correct time is the utmost requirement for improving the supply of goods in a market (Muniret al. 2020). Therefore, the recent budgeting including production and supply is not an accurate one that can support Exciteco to improve its business in the P division that deals with new mobile phones.
Improper division of the electronic component has created difficulties in maintaining the budget for Exciteco. The high cost of providing advanced features in the new phones is not properly budgeted by this organization has created issues in managing the environment of the business based on the requirement of the new phone. Therefore, budget modification is required to make it suitable for Exciteco in terms of managing financial aspects. Improvement of budgeting requires better financial planning along with the utilization of the concept of cost accounting to reduce financial loss.
Due to the reallocation of the P division, a serious increase in the demand has created an issue in the productivity of P divisions for Exciteco. This relocation can be termed as external factors that has hampered the business growth, especially for the P division. Therefore, customers of Exciteco have been forced to purchase products at a comparatively greater price range. This is a serious barrier in maintaining the popularity as well as customer satisfaction rate using which an organization can expect sharp growth. Satisfaction of different customers can be termed as the potential factor in lasting the behavior of customers (Bahadur et al. 2018). Therefore, these external factors of improper customer satisfaction and lack of business planning have hampered the performance of Exciteco which has bly influenced its financial performance. Based on the case study it is observed that those external issues have reduced the overall sales volume of Exciteco.
Improper support from the representatives of shareholders has bly influenced the business growth of Exciteco in the last year and is termed as another essential external factor. Shareholders can be termed as an important aspect in the rescue of any business by determining success or failure (Fairhurst and Lusinga, 2020). Therefore, the lack of super from shareholders is termed as the critical external factor that has bly influenced the performance of Exciteco. Based on the provided case study, it is observed that distinguishing between variances is useful for the development of the performance of Mexico especially in the manufacturing of electronic goods. Therefore, based on Penco's analysis it is observed that lack of customer satisfaction due to the high range of products along with the influence of poor super for stakeholders has caused barriers in the planning of the budget effectively in the new environment for Exciteco.
Different external factors that generally influence business growth are economic factors, demographic factors, competitive factors, and ethical factors. Poor performance of Exciteco after relocation includes economic planning including budgeting, demographic issues as the requirement has increased for phones after relocation, and other ethical factors. External factors generally depend on the two essential, groups such as micro-oriented factors along with the macro-oriented factors (Distanont and Khongmalai, 2020). Based on the case study, the divisional managers have calculated the budget on their own which has created issues in maintaining effective financial planning after reallocation. Therefore, lack of market research along with uncontrolled production has caused the issue of barriers to improving performance. Based on the case study, it is observed that a large number of organizations have addressed this issue of external factors and their influence on business growth. Therefore, the prior selection of variables and use of the cost accounting strategy can be beneficial for Exciteco to improve its performance by reducing the influence of poor performance and external factors in business.
Variances analysis helps an organization in being proactive and archives the goals and objectives of a business. As power the scenario many of the organizations have addressed their poor performance issues by analyzing variances in operational elements and planning. According to Guelfiet al. (2020) variances analysis help in recognizing and mitigating potential risks which ultimately works on developing trust among team members and contributes to the success of the working plan. It has been found that several external factors have contributed to the poor performance of Exciteco and therefore the shareholders of this corporate company have focused on distinguishing between variances and external circumstances. It has been identified that variance analysis is an important tool for budget planning and appropriate business management (Cleartax, 2021). According to the scenario, although the budgeting process of Exciteco is well established, it has observed poor budget results in the current year compared to the previous year.
Based on the poor performance observed by Exciteco last year it can be stated that using variance analysis in budgeting can help the company to manage its annual budget by tracking the budget figures and comparing them with the actual cost or revenue. Besides that, the financial data of a company can help in understanding inventory level or expenses level. Nevertheless, variance analysis can help Exciteco to accurately understand the reason behind the variance between actual and planned revenue which might help the electronics manufacturing company to adjust its business objectives and business strategies. Variance analysis also helps in analyzing the relationships between some variables (Cleartax, 2021). For example, correlation analysis is a critical part of business, and using variance analysis Exciteco can define the relationship between the sales of its different products from the G division or P division.
In the context of operation management, variance analysis can help in differentiating between the actual and expected results of production processes in Exciteco. Variation analysis is helping to manage the expected outcomes and creates more operational efficiency to improve business management. Apart from this, it can be said that all labor costs, accounts, budgets, and other factors are managed by variation analysis. With the help of this method, an organization can change its accounting systems, business planning, and other relevant things. Many companies and organizations have developed their strategic abilities with the help of variation analysis. It helps to focus on different operational perspectives so that they can improve their performance and get more opportunities from local and global markets. Many complexities, competitive challenges, and other financial issues can be mitigated by using this analysis method (Nottingham.ac.uk, 2022).
Books
Caruana, J., Brusca, I., Caperchione, E., Cohen, S. and Rossi, F.M., 2018. Financial Sustainability of Public Sector Entities: The Relevance of Accounting Frameworks. Palgrave Macmillan.
Journals
Bahadur, W., Aziz, S. and Zulfiqar, S., 2018. Effect of employee empathy on customer satisfaction and loyalty during employee–customer interactions: The mediating role of customer affective commitment and perceived service quality. Cogent business & management, 5(1), p.1491780.
Ciuhureanu, A., 2018. Management accounting–Managerial obligation or need. Land Forces Academy Review, 23(4), pp.282-287.
Distanont, A. and Khongmalai, O., 2020. The role of innovation in creating a competitive advantage. Kasetsart Journal of Social Sciences, 41(1), pp.15-21.
Fairhurst, K.J. and Lusinga, D.D., 2020. Role of stakeholders in business rescue. South African Journal of Business Management, 51(1), pp.1-11.
Flayyih, H.H., Mohammed, Y.N., Talab, H.R. and Radhi, N.R., 2020. Integration of the system of Activity Based Costing and liability accounting. Integration, 1(2), pp.1-9.
Guelfi, S., Saluto, P. and Zanier, M.S., 2020. Automotive Independent After-Market. Product Category Revenues Variances Analysis and Competitive Positioning.
Karagiorgos, A., Alexandra, G., Ignatiou, O. and Terzidou, A., 2020. Role and contribution of administrative accounting to small and very small businesses. Journal of Accounting and Taxation, 12(2), pp.75-84.
Labrador, M. and Olmo, J., 2019. Management accounting innovations for rationalizing the cost of services: The reassessment of cash and accrual accounting. Public Money & Management, 39(6), pp.401-408.
Mio, C., Panfilo, S. and Blundo, B., 2020. Sustainable development goals and the strategic role of business: A systematic literature review. Business Strategy and the Environment, 29(8), pp.3220-3245.
Munir, M., Jajja, M.S.S., Chatha, K.A. and Farooq, S., 2020. Supply chain risk management and operational performance: The enabling role of supply chain integration. International Journal of Production Economics, 227, p.107667.
Pedro, M.I., Martins, J.C. and Filipe, J., 2018. Competing globally with cost accounting: a case study. Competing globally with cost accounting: a case study, (2), pp.1412-1418.
Website
Cleartax., (2021). Variance Analysis – Overview, Budgeting, Benefits. Available at: https://cleartax.in/s/variance-analysis [Accessed on: 14 February 2022]
Forbes, 2021. Putting The Balance In Balancing Your Company Budget, Available at: https://www.forbes.com/sites/forbesfinancecouncil/2021/11/04/putting-the-balance-in-balancing-your-company-budget/?sh=3e55bf971a03 [Accessed on: 14/02/2022]
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