Knowledge that Transforms

In one sense, the role cost accounting plays in cost control might be likened to the part that an inspector plays in quality control on the production lint. The production processes are established after careful engineering studies and planning. Quality is maintained by physical inspection and testing by the inspector. The accounting procedures have been established so as to accumulate facts concerning costs in a scientific manner adapted to the production system. However, the role of cost accounting differs from that of the inspector in that cost accounting also assumes a partial responsibility for the establishment of economical and efficient production procedures. The role that cost accounting plays assumes more importance when the methods and techniques developed are applied to costs to acquire and costs to distribute. Under various cost concepts, these same techniques can be applied to retail, wholesale, and service businesses. The imputed cost concept may be useful in determining profitability of departments. The cost accountant must recognize that there are limitations to the use of cost data in controlling costs. The improper cost concept may be used and the facts distorted. Other external and internal factors may outweigh the cost data presented resulting in necessary decisions just the opposite of cost facts. Accumulating cost facts can be a heavy expense. Unless the results obtained from the work performed to obtain the cost figures can be used to reduce costs or provide adequate control of present costs, the cost accountant must curtail his cost efforts. The guideposts for the business are built from the framework and structure of the cost accounting system. The cost accountant's role within the business structure is here to stay. Industry should continue to progress on its directed path as long as management keeps alert to the ever changing costs of the firm.

Fifty years ago the principal interest of those concerned with the financial data of business enterprises centered on the periodic display of assets and liabilities (balance sheet). Over the course of the last half century there is little question that a pronounced shift in the interest of the users of published corporate reports has occurred. Thus, at the present time the principal attention of investors, financial analysts, employees, and the general public is focused on the statement setting forth the periodic net income or earnings of the business, with the balance sheet being viewed".. . as the connecting link between successive income statements and as the vehicle for the distribution of charges and credits between them." This emphasis on the significance of the amount of periodic net income has resulted in a considerable amount of attention on the part of professional societies and regulatory bodies being directed toward the establishment of principles and procedures aimed at achieving a high degree of objectivity in the determination of periodic net income for the individual enterprise, with the resulting increased meaningfulness of the comparison of the operating results of two or more enterprises. It will be the purpose of this article to survey some of the accounting techniques which may be applied to affect the assignment of net income to successive accounting periods. As the title indicates, emphasis will be placed on the possibilities for smoothing or leveling the amplitude of periodic net income fluctuations.