Cost Accounting-Chapter 1

Topics: Cost accounting, Management, Management accounting Pages: 3 (899 words) Published: September 3, 2014
Cost Accounting - Chapter 1

1.Flexibility is said to be the hallmark of modern management accounting, whereas standardization and consistency describe financial accounting. Explain why the focus of those two accounting systems differs.

Financial accounting is more about the bigger picture—it evaluates the finances of the organization as a whole, using historical, quantitative, monetary, and factual data. It is more formal and requires the use of GAAP. The information financial accounting provides is more suitable for external users such as investors, creditors, and the SEC. Meanwhile, the information obtained from managerial accounting is more for internal users such as managers and employees. This type of accounting is focused on the parts of the organization to see how the operations of the organization help generate income (or create deficits). Additional data than the ones used in financial accounting are included (e.g., nonmonetary, qualitative, current as well as predictive), which are typically more informal. The users then utilize the information and review the cost benefits in order to make plans for the company’s future.

2.Why are legally binding cost accounting standards more critical for defense contractors than for other entities?

Defense contractors are subject to more critical standards due to government contracts, which are usually awarded on a low-bid basis. In order to generate comparable bids, standards are needed to establish uniformity and consistency. Without those legally binding standards, the bidding companies may include different costs in their bids, thus making it difficult if not impossible to compare their bids.

3.Why is a mission statement important to an organization?

A mission statement is a clear explanation of the organization’s purposes and aims as well as how it uniquely fulfills the customers’ needs with services and/or products. The statement helps the organization to formulate a strategy in meeting...
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