Question

As part of the accounting process, employees provide managers and employees within the organization with information needed to determine the cost of producing specific products or services. This information is used to evaluate current expenses and to compare them to historic data, international data, and data from suppliers, subcontractors (if any), and other processers (if any) to determine if a less expensive alternative is available that will generate the same product quality. What specific type of accounting is being performed in the beginning of this process?

A) Managerial Accounting
B) Financial Accounting
C) Cost Accounting
D) Tax Accounting

Answer 1

Cost Accounting is the specific type of accounting used to evaluate the cost of producing specific products or services and to find less expensive alternatives without compromising quality.

Step-by-step explanation:

The specific type of accounting being performed at the beginning of this process is Cost Accounting. This branch of accounting focuses on capturing a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as lease expenses. Cost accounting is used for internal decision-making to help managers evaluate the expenses involved in producing specific products or services. By analyzing current expenses and comparing them to historical data, international benchmarks, and costs from suppliers or subcontractors, cost accounting aids in identifying potential cost-saving opportunities without compromising product quality.

Additionally, understanding the difference between accounting profit and economic profit is crucial in this context. Accounting profit is the total revenue minus explicit costs, which are direct, out-of-pocket expenses. In contrast, economic profit subtracts both explicit and implicit costs from total revenue, providing a broader view of a firm's profitability. Since cost accounting contributes to determining a product's explicit costs, it is integral in computing accounting profit, which can differ significantly from economic profit.