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The preceding formula does not yield as clean a relationship between direct materials expense and work-in-process or finished goods, because these two categories of inventory also include cost allocations for direct labor and overhead.
However, if these added costs can be stripped out of the work-in-process and finished goods valuations, then there are reasonable grounds for comparing them to the direct materials expense as a valid ratio.
Management Accounting: Concepts, Techniques & Controversial Issues Chapter 11 Conventional Linear Cost-Volume-Profit Analysis. James R. Martin, Ph.D., CMA Professor Emeritus, University of South Florida. MAAW's Textbook Table of Contents. Society for Inventory Management Benchmarking Analysis. Society for Inventory Management Benchmarking Analysis™ (SIMBA™) brings together a variety of business to consumer companies for the purpose of process improvement and identification of "Best Practice" companies through benchmarking. Learning Objectives After studying this topic, you should be able to, 1. Understand the concept of Financial Accounting, Cost Accounting and Management Accounting.
The turnover ratio can be skewed by changes in the underlying costing methods used to allocate direct labor and especially overhead cost pools to the inventory. For example, if additional categories of costs are added to the overhead cost pool, then the allocation to inventory will increase, which will reduce the reported level of inventory turnover—even though the turnover level under the original calculation method has not changed at all.
The problem Management accounting cost analysis summary also arise if the method of allocating costs is changed; for example, it may be shifted from an allocation based on labor hours worked to one based on machine hours worked, which can alter the total amount of overhead costs assigned to inventory.
The problem can also arise if the inventory valuation is based on standard costs and the underlying standards are altered.
In all three cases, the amount of inventory on hand has not changed, but the costing systems used have altered the reported level of inventory costs, which impacts the reported level of turnover.
A separate issue is that the basic inventory turnover figure may not be sufficient evidence of exactly where an inventory overage problem may lie. Accordingly, one can subdivide the measurement, so that there are separate calculations for raw materials, work-in-process, and finished goods and perhaps be subdivided further by location.
This approach allows for more precise management of inventory related problems. Why Inventory Availability is an Important Analysis One of the primary reasons for having inventory is to satisfy customer demand in a timely manner. Maintaining a high level of inventory availability is usually cited as the primary reason why companies keep such high levels of finished goods and service parts on hand.
How To Calculate Inventory Availability To measure inventory availability, divide the total number of completed orders received by customers no later than their required date during the measurement period by the total number of completed orders that customers should have received during the measurement period.
Total number of completed orders received by customer by required date —————————————————————————————— Total number of orders that should have been completed Notes: The measurement emphasizes a successful order fulfillment as one received by the customer on time, because the customer is not being served properly if the order was merely shipped as of the required due date.
Most company systems have no provision for tracking customer receipt dates. A company can falsely assume that it has a high availability rate if it counts any sort of partial shipment as a completed order in the numerator, possibly on the grounds that it has successfully shipped nearly all of an order.
During that time, one can forget their presence on the assumption that they are accumulating no costs and so can be safely ignored. Unfortunately, inventory accumulates more costs every day in the form of rack space taken, insurance coverage expenses, the opportunity cost of invested funds, and so on.
How To calculate Storage Cost per Item There are several ways to measure the storage cost of an inventory item.
At a summary level, one can simply divide the total number of SKUs actually on hand into all warehouse costs, which comprise the fully burdened wages of all warehouse staff, depreciation on all fixed assets, inventory insurance coverage, utilities, obsolescence, scrap costs resulting from damaged goods, and the corporate cost of capital on funds invested in inventory.
At this simplified level, the calculation is as follows:Summaries of over + MBA methods on strategy, performance management, finance, valuation, change, corporate governance, communication, marketing, leadership and responsibility.
MBA models and MBA theories. Value Based Management. Cost accounting is the process of recording, classifying, analyzing, summarizing, and allocating costs associated with a process, and then developing various courses of action to control the costs. Its goal is to advise the management on how to optimize business practices and processes based on cost efficiency and capability.
Cost accounting provides the detailed cost information that. The key management accounting techniques and methods for NEXT Plc 5 Planning and Budgeting: 5 Balance scorecard 5 Cost-volume-analysis 5 5 The analysis’s strengths and weaknesses 6 Strengths 6 Weaknesses 6 6 Conclusion 7 References 8 1.
Challenged with responsibility of accounting and management information system operations for a major television post-production company with $30 million in annual revenue and subsidiaries in Hollywood, Burbank, New York. I have discussed earned value management in my previous blog post in detail and also provided a short brief of its three elements: Planned Value (PV), Actual Cost (AC), and Earned Value (EV)..
We are going to look at these elements in detail. From this point onward, you’re going to see mathematical calculations. Therefore, I request you go . Course Description This course covers what everything business people and managers need to know about accounting and finance.
It is directed toward the businessperson who must have financial and accounting knowledge.