Cost Accounting for Internal Decision Making and Evaluation : A Case Study

• Main Authors: Fogelkvist, Marcus, Axelsson, David
• Format: Others
• Language: English
• Published: Internationella Handelshögskolan, Högskolan i Jönköping, IHH, Redovisning och finansiering 2011
• Subjects: Cost Accounting; Financial Performance Evaluation; Food Manufacturing Company; Internal Decision Making; Special Orders.; Business and economics; Ekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:hj:diva-15257

This study addresses the importance of cost accounting and performance evaluation for organizations. Further, this study explains the purposes of cost accounting and performance evaluation. The chosen method is a single case study which investigates how product costing is made within a food manufacturing company, called Omega in this study. Interviews have been an important tool for collecting data; data used to create a snapshot of Omega’s current operations. Cost concepts, cost allocation methods, and performance evaluation theories are presented and later compared with the snapshot of Omega. Dissatisfaction concerning product costing in Omega was first expressed by a business unit manager. Search revealed that the issue concerning product costing was not a problem per se; instead it was a symptom of a more fundamental issue. The more fundamental issue is Omega’s cost accounting and financial performance evaluation used throughout the organization. Omega evaluates its business units using financial operating results measures based on information from its cost accounting system. Uncertainty within Omega has been observed concerning a performance measure called operational result. Search has revealed that the business units within Omega do not have the ability to control costs upon which they are evaluated, and further that all costs are not relevant for business unit performance evaluation. Three cost categories for cost accounting have been constructed with the purpose of serving as a base for financial performance evaluation. Treating costs differently based upon their characteristics enables organizations to form a well-functioning financial performance evaluation system which can lead the organization in the right direction. Ultimately, a well-functioning financial performance evaluation system enhances motivation and commitment in business units as well as it gives the top management a correct performance indicator.