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Final Paper
The essence to have a successful firm is the ability to plan and control costs and
to have this information viable for making business decisions, which, in turn, should
result in profit maximization. To meet managers’ needs for cost information, an
important part of management accounting is concerned with cost accounting and with
providing the necessary data, such as the budgets (operating and capital), financials
and cost-benefit analysis. Cost accountants are able to use methods like the matching
principle, which is when revenue is matched to its expenses in the same period, to
provide such information. When providing these estimations, uncertainty about the
future with both sales and costs, still exists. Cost accountants can assist with mitigating
this uncertainty through the use various other estimations that can hold either a positive
or negative outcome. The forecasting of sales and expenses is also vital in the creation
of a budget to assist management and the firm with future decisions along with
providing a more accurate profit estimation. It is important to note that cost accountants,
unlike publicly traded companies, are not obligated to report their financials in
accordance to GAAP. The conceptual framework allows for cost accountants to follow
the standards of a country with similar GAAP that is usually released by IFRS or a
national standard setter.
Firms are able to make strategic business decisions that ensure profit
maximization from operations through the implementation of various cost accounting
methods. These methods, such as the ROI, NPV and payback period, contain accounting
estimations when generating the results, therefore there is a presence of internal (inherit)
risk relating to inaccuracy of measurement along with external risks pertaining to wrong
assumptions. To safeguard the risky investment in profit increase and providing investors
with a return, the hurdle rate or margin of safety is critical for cost accountants to use.
That being said, the strategy of every firm is to make as much sales as possible, while
using the least amount of resources possible. This not only provides a valuable return to
the investors, who have funded the assets and operations of the firm, but it also
maximizes profit. The use of capital budgeting is necessary in the sense that it will allow
the firm to figure out how they are able to implement long-term assets to make even more
revenue with less resources. However, this comes with the risk of opportunity costs, which
prevent the firm from financing into another project and sunk costs, which lock the firm
into a long-term plan. That being said, the time value of money and discounted cash flows
is a necessary measurement that should be made to assess the benefits and costs of
