Aspects of Costing Accounting

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Introduction

In the case of Vin and Brian, the four units of the new proposed business entity can be considered repetitive. Primarily, paying attention to the products, this business is based on service delivery and the products thereof are food and beverages. Both the casual and the upscale dining rooms are serving the same purpose the only difference will be in the standard of service delivery. The service rendered is dining space hence the repetitive production in two different units. The same is extended in the semiannual grand dinners as well as the catering services of the surrounding offices. All this service could be encompassed under one unit and still offer all these services.

Dividing the units into the four subdivisions only makes the cost of operating higher and more challenging in terms of management and consequently financial accounting. Grand dinners and the catering services are both offering food services as well as beverages. The dining rooms create space for food and beverage services to be offered which is actually a repetitive production of the prospective goods and services that Vin intends to offer.

Costing approaches

In accounting, there are a number of approaches used in Costing. They include Unit costing, Job costing, Contract Costing, Batch Costing, Operating Costing, Process Costing, Multiple Costing, and Uniform Costing (Drury 78). Unit costing which is also known as the single output costing is mostly used in manufacturing and products that have identical quantitative units (Drury 78). Therefore, this method of Costing cannot be effective in Vin’s business since it is not a manufacturing entity. Contracting Costing on the other hand cannot also be used in Vin’s type of business entity because this approach of costing is normally used in business or projects that involve great volumes of expenditure. In this approach, every contract is viewed as a unit and the Costing is done per contract.

This model is normally used in big projects such as construction of bridges, building, roads, and other big projects. Batch Costing is used in units that are produced with the same design and of the same design, for instance bakery products and as well as pharmaceuticals (Horngren 35). Operating costing also known as, service Costing is one of the approaches that Vin can engage in his business. This approach is normally used to express the cost of operating a service and a restaurant being a service delivery business, this model is sufficient for that business. The process Costing is also viable in this kind of a business because it is used on products that go through a number of processes in their production. A restaurant is a business that involves many processes before the product is achieved.

This process will help evaluate the processes of cooking and providing the dinner services and preparing for annual grand dinners for corporate. The office catering services involve many other processes such as transportation of these meals to the customer, and other logistics, which need to be accounted for in the Costing of these services. Multiple costing is yet another approach of Costing, which is best used, on products that comprise of assembled parts. In this way, general Costing of a single unit is given to the entire product as a unit. However, the Costing is inclusive of the components assembled to make the final product.

Uniform Costing is a method or a system of Costing used by firms in the same industry (Maher 65). This is used as a common system of Costing in the industry and is used to fix the price of the products that the firms produce. Restaurant and hospitality businesses use this method most of the time. The players in this industry set price for their service, hence influencing the trade in the industry. If an industry uses this mode of Costing, every player willing to join the industry has to conform to the set Costing procedures and have the agreed prices.

Types of costing

There are distinct types of costing used in accounting and they include marginal costing, absorption costing, standard costing, and historical costing among others. The marginal costing involves direct labor, direct raw materials including other direct expenses that are associated with a product. In this type of Costing, there is a distinction between the variable and fixed costs (Essen 70). Vin’s business as advised by his nephew should focus mostly on the aspect of Costing because it is through this that he Can bet loyal and permanent customers in the end.

Absorption is another type of Costing that Vin can exploit to the advantage of his business. This technique absorbs the cost of both variable and fixed costs of production (Warren 36). In cases where there are certain limiting factors such as standard operating Costing in an industry, the use of standard Costing come in handy. Lastly, there is the historical Costing where the cost is achieved through the actual costs rather than predetermined standards (Schmiedicke and Nagy 68).

Looking at all the above-mentioned pricing procedures, it is without a doubt necessary for vine to consider calculating his moves before making them in the first place (Schmiedicke and Nagy 58). Cooking and having an already operating restaurant has not guaranteed him success in any way. Proper planning and careful trading paying due attention to the factors of production, the industrial environment and other economic factors that may influence the business is important (Schmiedicke and Nagy 67).

Importance of accounting

Accounting helps the parties involved in a business entity to make proper judgment and informed choice and decisions. Vin, who is the proprietor, should begin by ensuring that all the necessary measure that will enable him to track the financial performance of his business is well laid out. Financial accounting information is crucial for the managers, the owners of the business and the federal government for legal purposes.

It is actually very difficult to make feasible financial and investment decisions without financial accounting information about your intended business venture. Cash basis accounting for instance is important in this case because it is based on tracking financial transactions. In any business, many changes hands in so many arenas and for varied reasons. Every business gets into the market to make money and this is the bottom line of every business entity (Schmiedicke and Nagy 69).

Money being the center of business activities, it is paramount to track its movements from one person to the other. Tracking money ensures that there are no cases of misappropriation or misuse and embezzlement of cash. To have such a track of the cash flow, then Vin needs to consider the recommendations of his nephew and pay due attention to financial accounting as a factor of production. Instances of money getting lost or wrongly misappropriated occur during the circumstances that lead to money changing hands in payments and purchases (Schmiedicke and Nagy 69).

Accounting is an important tool of management of any business unit be it small medium or big. It assists the management to assess the cost of processes of production as mentioned earlier in the types of accounting. This knowledge helps managers to begin their managers to begin their managerial functions by fixing the process of production and understanding the dynamics of the same. The advantages of this are uncountable.

The importance of accounting for managers

To begin with, managers are able through accounting to ascertain the production cost of products. This then informs their decision on fixing the prices and costs of the final product in a competitive margin that will enable the company to be profitable and remain competitive at the same time. Costing records go a long way in helping a business to establish and make right decisions while entering a certain market. With the knowledge of the costs of production, the management can consequently come up with cost reduction processes that would lead to the overall change in prices

Reduction in prices increases the chances of market survival for a business. Accounting information on the other hand informs the decisions that make the prices go down. This means that through accounting, management can identify the process of production and identify where extra and excessive expenditure is happening. This gives them an opportunity to evaluate and review the processes and ultimately better production solutions are born. This is a vital procedure and it helps in price reduction to both the customers in terms of purchasing prices, and the producer in terms of production cost (Warren, Reeve and Duchac 52).

It is also important to note that in production there are always many ways through which wastage can happen. In a case scenario where the business in question is a restaurant, many loopholes can lead to wastage of resources. Wastage can be in the form of financial wastage or material wastage but in both, accounting is the sole solution. Whether financial or material wastage, accounting keeps track and records of every asset or capital asset invested in the business.

Employees may start misusing the raw materials and in this case, we are looking at foodstuffs and drinks. The business will not survive if employees will start using foodstuffs meant for business to their own advantage (Warren, Reeve and Duchac 52). It is possible that workers can steal away foodstuffs meant for the restaurant. Edible stock like fruits and drinks can also be misused if not properly accounted for in his case. The process of Costing gives a clear outline of the entire processes involved in the production hence quantitative analysis of pricing is done.

With such, all the loopholes that can be used to sneak out the business’ property will be in check since every property is accounted for and the financial report will always reflect the presence of absence of a particular factor of production. This only made possible by accounting. Therefore, before even thinking about setting out to do the first cooking, Vin should first look at the accounting aspect of this business and this will help him make a better decision concerning his investment. Cost information above all the other advantages helps in fixing the selling prices, which is a very important ingredient of a business success (Warren, Reeve and Duchac 56).

The importance of accounting for employees

Apart from the importance of Costing Accounting to the owner, the investor or the manager, it also has advantages for the employees as well. As cost accounting helps the business to track and check the business to ensure it is running effectively, the growth realized affects the employee morale. A company with a good accounting system will not lose money through fraud and irregularities. This will translate to proper management and maximum utilization of the resource. Consequently, the company or business entity becomes successful and profitable. This will lead to other Costing systems that benefit employees such as incentive plans (Warren, Reeve, and Duchac 96). This has an ultimate result of increased productivity as well as increased earning capacity (Warren, Reeve, and Duchac 97).

Therefore, Vin has no choice but to allow the rule of business to take its effect, go ahead, and evaluate the accounting processes of his business before even starting it. Knowing that with this type of a business, there has to be other players including Suppliers, Moneylenders, to mention but a few. Being a new business, the vine will have to convince his suppliers on his credibility and as well as showing his financial capability. It is common knowledge there are other players who have great influence on the success of a business.

He indicated that he would be borrowing financial help from family members. Clearly, nobody would want to lend another person any money without a clear indication that his her money will be used wisely. In order also to be able to pay back the borrowed cash, the vine has to be careful with how he uses it and accounting comes in handy in tracking such issues. Based on the Costing system put in place, creditors can have confidence in a business capability thrive and pay the debt. Costing systems help to build the creditor confidence in your project and this is exactly what Vin needs to do. A new business is a challenge and getting it to start can be very challenging without some of the things that cushion the struggles of new players.

Financial accounting

Cost accounting is the main tool for checking financial accounts. A business that does not employ such systems stands at risk of losing a substantial financial base through a number of ways. A theft from employees can be factored in because they know there are no measures to monitor their expenditure. Price exaggeration on factors of production such as the raw materials used can also be a loophole that can be used to rob the business for personal gain.

It is important to note that this kind of theft not only destroys the business’ capital base but also destroys its capability to survive and compete with rivals. A struggling business is a business that cannot support its expenditure. Employee theft can cripple a business and render it bankrupt if the situation is not rectified in time. Cost accounting systems are meant to protect businesses from such unfortunate occasions by preventing the occurrence of it before it happens. Vin should consider these facts before he decides to venture into his prospective business.

Financial accounting is done through a process called the Integral accounting, which involves maintaining cost and financial accounts in a single set of books (Warren, Reeve and Duchac 79). As Vin’s nephew suggested, focusing on the physical and public relations aspects of a new business is good for attracting and mobilizing a customer base. However, it is clearly not the first priority while establishing a new business. Public relations will only give the business a temporary success.

Have effecting methods of attracting and influencing customers are great advantages for any business. However, the ability to sustain and meet their needs competitively is a different struggle all together. Décor and menus will only attract the customers and give the business good returns. That is not the problem; in fact, that is the best part of it. However, without effective systems to manage and track the financial growth of the restaurant, it will eventually collapse.

The owner must make the hay while the sun shines and engage in preventive approaches in this issue. If this is done now, it will eventually be necessitated by circumstances and that may be too late to rectify the damage. The business is not too small to engage in Costing and budgeting system. Monitoring a new business through the four monthly financial statements is viable and very possible. The period gives the business time to operate hence giving a concise reflection of the conditions of the business financial worth.

Nonetheless, in a new it is not safe to use the four financial statements given after every four months. A new business depending on CPA reports is not a well-advised decision (Schmiedicke and Nagy 97). First, it is an added cost to the business and in its earlier stages; there are no complex financial records to require the skills of a CPA. That notwithstanding, a new business requires a closer evaluation in terms of financial and market performance. The four months of financial reporting for a new business are quite inappropriate and may harm the business (Schmiedicke and Nagy 97).

Therefore, about depending on the CPA reports or abandoning the costing systems is an ill-advised move for this particular business. All of the information covered in this paper is all intended to show the relationship between the case study and accounting. All the major approaches of accounting have been outlined and clearly shown in relation to the case study. The paper discusses the importance of Costing Accounting and why Vin, should embrace Costing systems before venturing into other aspects of his business.

This paper has sought to show that Costing accounting is the most important aspect of a business despite the paper admits that there are other factors. They include public relationships, which have been described in this case, study as a sure way luring a customer but not keeping them. Accounting is more of a background activity, which has great advantages in the end as opposed to public relations and advertising, which only work, in the short run. The paper has comprehensively covered all aspects on the topic of accounting in relation to the case study.

Works Cited

Drury, Colin. Management and Cost Accounting, Connecticut, U.S.A: Cengage Learning, 2007. Print.

Essen, Peter. Accounting, New York, NY: Barron’s, 1994. Print.

Horngren, Charles. Cost Accounting: A Managerial Emphasis, New York, NY: Pearson Education, 2012. Print.

Maher, Michael. Cost accounting: creating value for management, Toronto, ON: Irwin, 1997. Print.

Schmiedicke, Robert, and Charles Nagy. Principles of cost accounting, Nashville, U.S.A: South-Western Pub. Co., 1983. Print.

Warren, Carl, James Reeve and Jonathan Duchac. Accounting, Connecticut, U.S.A: Cengage Learning, 2008. Print.

Warren, Carl. Survey of Accounting, Connecticut, U.S.A: Cengage Learning, 2008. Print.

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