The framework of planning and controlling management activities :The effective use of company capital is one of management’s chief concerns. This capital is invested in the form of productive facilities such as factory buildings, factory machinery, tools, and equipment (called property, plant, and equipment in accounting terminology) as well as in the form of circulating capital called current assets.
The use of this capital is determined by management’s plans for the immediate future and by plans for two to five years ahead. The budget emerges as the result of management’s planning and plays an important role in controlling operations. Constant comparison of the budgeted plan with actual results not only provides a measure of the amount of deviation but also reflects the reasons for variances or differences under the framework of planning and controlling management activities.
In the control phase, cost accounting deals with present, comparing current results with predetermined standards and budgets. Cost control, to be effective, depends upon proper cost planning for each activity, function, and condition. Via the cost accounting media, management is informed frequently of those operating functions that fail to contribute their share to the total profit or that perform inefficiently, thereby leading to profit erosion. Periodically, generally at the end of the fiscal period, cost accounting deals with past costs for the purpose of profit determination and thereby with the allocation of historical costs to periods of time.
At this point cost accounting procedure is particularly concerned with the application of manufacturing cost to units of products to be capitalized in the ending inventory and transferred to cost of goods sold as shipments are made.
The framework of planning and controlling management activities should be a regular practice by the management.