Question

MEMBED Ltd has been in business for the past 20 years. In the last meeting of the Board of Directors, it was proposed that a cost accounting system be established and a Cost Accountant employed. However, the Managing Director disputed this proposal on the grounds that there is no need for a cost accounting system. He also argued that there is no need for a Cost Accountant as the Accountant of the company is enough for all accounting functions. You are a trainee accountant who has just joined the company as an intern. Required: Write a report to the MD explaining what a cost accounting system is and discuss the argument by the Managing Director. (Total 20 marks)

Answer 1

This is in regarding the need for the cost accounting system to be established in the company. Cost accounting system means is a framework used by companies to estimate the cost of their products for profitability analysis, inventory valuation, and cost control. For a company to know the profitability of a product which they are dealing with is very important and this can be only ascertained when it has estimated the correct cost of a product. Further costing also helps in estimating the closing value of materials inventory, WIP, and Finished goods for the purpose of preparation of the financial statement preparation. There are various ways for costing a product and this can all be done effectively and efficiently by a person who has a qualification in the said field.

Therefore, I feel that a company should follow the division of work and should establish a cost accounting system and appoint a cost accountant so that it can achieve all its goals.