W9_Ocharlie_Cost Accounting Technique

Problem definition

Cost accounting is defined as the historical reporting of disbursements and costs and expenditures on a project. When applied to a current project assists in giving precise project status. What is the better technique for cost accounting?

Feasible alternatives

Work breakdown structure (WBS)

Code of Accounts (COA)

Activity based Costing (ABS)

Develop the outcome of each alternative

 

Table 1 3D WBS Matrix

 

 Table  2 Activity Based Costing

  

2000 Assets                                                                     6000 Expences

2100 Cash                                                               6100 Cost of products sold

2200 Accounts Receivable                                     6200 Salaries and wages

2300 Notes Receivable                                          6300 Heat, light, and power

2400 Inventory – materials and supplies                 6400Communications expence

2500 Inventory – finished products                         6500 Insurance

2600 Work-in-progress                                            6600 Insurance

2700 Equipment                                                       6700 Taxes

2800 Buildings and fixtures                                      6800 Depreciation

2900 Land                                                                6900 Interest expense

3000 Liabilities                                                          7000 Project work in progress

3100 Accounts payable                                           7100 Structural skid

3200 Notes payable                                                 7200 Piping works

3300 Accrued liabilities

3500 Reserve accounts

4000 Equity

4100 Retained earnings

5000 Reserves

5100 Sales of finished products

5200 Other revenue

Table 3 Typical Code of Accounts

 Selection of criteria

The attribute for the selection criteria is;

·         Cost visibility

·         Project visibility

·         Cost forecasts

Analysis of alternatives

Code of Accounts summarises costs around business practices. It classifies various categories of costs incurred in the progress of a job. It does not provide the visibility needed to manage the work or to make informed forecasts of the cost of new jobs.

The ABC assigns resources to the activities that are required to accomplish the cost objective. In this way resources and activities that are cost drivers are known. Fig. 2 shows resources assignment to activities.

The WBS matrix provides the framework for planning and controlling the resources needed to accomplish the work and facilitates the summary of project data regarding the cost and schedule performance cost.  Fig. 3 shows matrix of resources, required to carry out each activity to generate a product.

 Table 4 Comparison using the Nondimensional scaling of Compensatory model

      

ATTRIBUTES	COA	ABC	WBS
Cost Visibility	0	1	1
Project Status	0	0.5	1
Cost Forecast	0	0.5	1
	0	2	3

 Taking all the attributes to be of equal importance, the scores for each causal factors is the summation of the nondimensional values of each column..

Selection of preferred alternative

The WBS matrix provides a complete picture of the project with the costs associated with each subtask broken down to various resource costs. When used to classify and record costs, the WBS becomes the COST Element Structure (CES) and fulfills both technical and cost functions. Table 1 above shows that WBS provides cost visibility, project status and data for cost forecasts.

Performance monitoring and evaluation

Historical cost records represent the way a company conducts its business. Analysis of the cost data determines how the company has performed and to forecast cost trends. A project cost baseline is developed and is used as a basis of cost monitoring and control.

References

Postula, F. D. Cost Elements, Skills & Knowledge of Cost Engineering (5^th ed.), (PP 1.4-1.6) WV, AACE International

Humphreys, G. C. (2011). Definition of Scope, Work Breakdown Structure (WBS) and Dictionary, Project Management Using Earned Value (2^nd ed.), (PP. 45-58) CA, Humphreys & Associates Inc.

Humphreys, G. C. (2011). Collecting Actual Cost, Project Management Using Earned Value (2^nd ed.), (PP. 531-543) CA, Humphreys & Associates Inc.

Sullivan, W.G., Wicks, E.M., & Koelling, C.P. (2012). Decision Making Considering Multiattributes, Engineering  Economy (15^th ed.), (PP 582-584) New Jersey, NJ. Pearson Higher Education, Inc.