Week 5 discussion questions and participation Essay

Week 5 discussion questions and participation - Essay Example The direct method ignores any other service departments when allocating service cost to production departments. The step down method is different because it recognizes that in some service departments support the activities in other service departments as well as the producing department. The direct method is simpler for accountants to calculate the costs since there are less variables involved. The step down method uses a sequence of service department allocation to arrive at the different costs. In the business world accountants prepare information differently depending on the purpose. Managerial accounting focuses on providing information for internal purposes. Financial accounting on the other hand focuses in making reports for external users of information. Variable costing system monitors changes in costs that occurred on a daily basis. This helps managers in their day to day decision making process. Data and information that is presented to outside users must summarize the results of a period of time. External users are not concerned about the day to day operations of the enterprise. Cost distortions are a potential problem that can lead to many obstacles for a manager. If the costing system is not accurate the managers will make erroneous assumptions that can lead to business errors. For example imagine if a company had a costing system that stated that each unit cost $2.00 to produce. The costing system was distorted and the real cost of the product is $3.05. The made a decision to sell the product at $3.00 which a price that is 50% above cost based on the inaccurate costing system. The manager would lose $0.05 on every sale instead of making a $1.00 profit. If the company is able to develop a costing system that provides a lot of detail the decision seems like a good idea. The manager of that company has to determine if the benefits of maintaining the system outweigh the costs of