Tiffany Bradford's Blog
Posted by Tiffany Bradford
When looking at how to determine costing for their business, many people do not look beyond the basic types (i.e. job-order, process, etc.) to other types of costing that may be beneficial to their business such as life-cycle costing. This may be because they do not see the benefit of costing that does not follow GAAP (meaning further down the life of the product, costs will have to be accounted for in a fashion that is acceptable by GAAP), or because this type of costing is not understood.
Life-cycle costing can be very beneficial for a business because it allows a firm to look at the total estimated costs and revenues of a project before the product goes into the production phase. By identifying costs down the chain, a product manager can look at items in the design phase that can be adjusted to minimize costs in the future. It can also help the product manager to determine if a product is really worthwhile before costs are committed.
Although future costs and revenues must be estimated, life-cycle costing can be a huge help to a product manager and development team, as well as a company’s finance team. More information on life-cycle costing can be found in this article on Life-Cycle Costing .
Posted by Tiffany Bradford
Determining the right costing system for your company can be difficult, if a person is not familiar with common costing systems. Some of the most popular types of costing systems are job-order costing, process costing, operational costing, and activity-based costing. These costing can be used in conjunction with other types of systems for assigning costs such as life-cycle costing and normal costing, or even in conjunction with each other in certain situations.
The type of costing system that is right for your business can be determined firstly by what you do or make. If you manufacture a homogeneous product (meaning you do not have differentiated products), then process costing would probably be most appropriate. If you manufacture products that come in differentiated batches, job-order costing would be more appropriate than process costing. Operational costing is a combination of these two types of costing that is used for products that are similar but produced in batches.
Activity based costing (ABC) is a type of costing that can be used in many different industries and focuses on identifying the activities that drive costs. ABC is usually used in conjunction with other types of costing because it generally does not conform to generally accepted accounting principles (GAAP) for reporting purposes.
Posted by Tiffany Bradford
A fundamental rule of accounting and business management in general is that if the cost of an action is greater than the benefit received, the action should be avoided. This guideline has been highlighted with the passing of the Sarbanes-Oxley (SOX) legislation.
While the necessity of the SOX legislation is apparent, when does the cost outweigh the benefits? Certain aspects of this legislation will be (and are currently) so expensive for companies to adhere to, it will likely put many mid and smaller sized firms in jeopardy. Does this really benefit anyone?
Although the SOX legislation has highlighted this basic fundamental rule of cost versus benefits received, there are business decisions made every day with this rule in mind. It will be interesting to see the affect this legislation will have in the coming months on the business world.
Posted by Tiffany Bradford
One thing is certain, accounting and GAAP regardless of what country you’re in can be complicated and confusing. This confusion is only compounded when you are dealing with different countries with different GAAP and filing rules. The International Accounting Standards Board (IASB) is attempting to standardize accounting reporting worldwide with their principle-based international financial reporting standards (IFRS).
Why is this so important? Well, it’s very important now because the country lines are fading now that many businesses operate in more than one country, and many businesses are now forced to think globally in regards to their products and services – so somewhat standardized reporting would make sense for many businesses.
Also, standardized reporting may be even more important for investors. Comparing companies that follow the same general reporting standards is difficult enough; when you throw in the varying standards that may come with global investing the comparisons can be even further complicated.
There are many other reasons, but even with these two basic reasons the need for international financial reporting standards are evident. With the IASB now working with FASB in the U.S. and other accounting standard-setters around the globe, standardized accounting (in some shape or form) may not be impossible.
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Posted by Tiffany Bradford
The obvious answer to this question would be accounting, but like so many obvious answers this is not necessarily the best one. Unlike the Certified Public Accountant (CPA) exam, which is mostly about public accounting and auditing, the Certified Management Accountant (CMA) exam is not all about accounting.
You have to have a decent to excellent understanding of micro and macroeconomics, statistics, general business, business ethics, and business analysis. You also have to have an understanding of more financially oriented topics such as budgeting, investment decision-making, and corporate finance. These are all in addition to the understanding required of financial accounting, cost accounting, and internal controls. Essentially, you have to be a jack-of-all trades and master of a few as well.
Going through a Master’s of Business Administration (MBA) program is undoubtedly the best preparation for the CMA exam. If getting an MBA prior to the exam is not possible for whatever reason, degrees in finance, economics, business, or accounting are all valuable preps for this certification. The accounting degree, unlike with the CPA exam, does not seem to be any better preparation for the CMA exam than these other degree programs.
