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Chapter 14

Cost accounting

2.1 The role of cost accounting

Cost accounting has many roles in a business, including:

 recording costs – this can help determine the current strategic position as well
as monitoring areas such as economies of scale

 pricing products – this can influence competitive strategy and positioning (such
as impacting whether a low cost or differentiation strategy is followed)

 making decisions – cost accounting can help in areas such as in determining
whether to abandon a project, accept a new contract or invest in a new area.

2.2 Standard costing

Cost accounting will often use standard cost as its basis for calculations. However, it
should be noted that standard costing may not be appropriate in the modern
production environment because:

 Products are often non-standard

 Standards can become quickly outdated

 Production is highly automated

 Often an ideal standard is used

 Modern environments are more concerned with continuous improvement

 Modern managers need more detailed information

 More 'real time' performance measures are needed.

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