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Cost management - Essay Example

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The world economy is going through an especially difficult stage with an unprecedented downturn enveloping almost all economies of the world that has created total chaos in the business sector upsetting profit forecasts and budgets and spreading panic in corporate corridors. The…
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Download file to see previous pages ent even the best marketing brains from boosting sales, the only option available to even the most adventurous management is to reduce costs to maintain the existing profit level. At a cursory glance it seems to be the only and might be the most prudent approach that any management might conceive. But ill conceived cost reduction triggered as a panic reaction to the gloomy market scenario might cause more harm to the company than any good as expenditures that are absolutely imperative for the company’s health might be sacrificed in this new avalanche of trimming down of expenses. The role of the management accountant as a custodian of entire database of the company has thus assumed a critical importance as the management accountant occupies a vantage position from where a critical and dispassionate evaluation of exiting cost structure and a prudent management of costs, as contrasted to cost reduction, can be implemented. There has thus been a phenomenal, and largely unnoticed, shift in the role of management accountant in managing a business.
But this change can be properly appreciated only if one examines the basic nature of accounting and the inherent differences that exist between financial, management and cost accounting. This knowledge will equip an avid observer the wherewithal to adequately appreciate the subtle difference between cost and management accounting and cost management.
The basic objective of accounting is interpretation of financial data to provide a sound basis for action by management, investors and other stockholders in the entire commercial venture. (Paton 1949) Thus, from a means-end perspective the end is an expected cache of sound and economically relevant information and the means adopted can best be referred to as descriptions. From a more practical aspect it can therefore be said that accounting provides information for two distinct but inextricably interlinked purposes; the first one quite obviously consists of reporting to ...Download file to see next pagesRead More
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