Research Paper on "Cost Accounting for Contractors"

Research Paper 4 pages (1077 words) Sources: 5

[EXCERPT] . . . .

Accounting for Contractors

Cost Accounting is a method of assessing the possible costs which can be incurred in a certain business. It is a tool applied to analyze the categories and amounts of expenditure expected in order to sustain a certain business model. It aids in the efficient use of company resources. Predicting the expected costs in future business cycles can identify trends which can ensure taking measures to protect the profit margin. The advancement in the product life cycle and strategies devised to market them are governed by cost accounting as well. The costs of raw materials and manual labor are compared to the estimated product price to see if they are realistic or not. Cost accounting elements are incorporated in marketing practices to check the potential for their sales. It can prevent financial losses by establishing whether a product has enough market value or not. A marketing model which had worked previously might need to be changed to accommodate a new product. Cost accounting can be crucial in making decisions such as analyzing the priority of fund allocation for a department and the practicability of opening or closing store locations. Cost accounting standards have been developed in order to enhance the reliability of the data provided by contractors. This form of data usually helps in drawing settlements, deciding on prices and supervising contracts. These are rules which check indecisive accounting stunts which can disrupt an organization's reputation ("What is Cost," 2011).

Government contractors encounter a multitude of economic and administrative challenges. The accounting guidelines accompanied by contract terms levied on government agencies are usually multifaceted with periodic updates. This can prove to be pretty overwhelming for small and medium sized businesses. The government nowadays is reinforcing their endeavors in defending funds collected from taxpayers. Contractors need to exhibit their proficiency in cost accounting procedures and prove their compliance with requisites set forth by the government. Those who manage to accomplish this effectively and implement it on their strategies, business models and workflows get acclimated to any new requirements and hold an advantage over their opponents (Tinsley, 2010).

There are a quite a few areas in cost accounting which are vulnerable to contractors making mistakes. Government rules can be multifarious and it is necessary to understand them properly. It is wrong to consider that cost accounting for the government implies a slight edited version of commercial establishments. Government contactors need to deal with a requirement set which is beyond the ones prescribed the Financial Accounting standards board. These are usually detailed and include rules for Federal Acquisition and their agency supplements apart from Cost accounting standards. For instance, the government confines the level of compensation to what it considers reasonable. Any amount beyond that cannot be expected from that government contract. Similarly expenses accrued in the name of entertainment is cannot be charged (Tinsley, 2010).

Government contractors eventually try to make the cost accounting functionality automatic. This goes on to make conformity to government rules easier. An accountant at a middle or senior position might get employed to oversee those operations. Organizations might question the feasibility of maintaining their structure in case anyone quits their position or is physically unavailable. Trained professionals are recommended for… READ MORE

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