Category: Cost Accounting

Project Budget

Fixed Costs

The first line of the financial plan is devoted to the description of fixed costs. The latter concept represents the expenditures that are constant throughout the analyzed period of time (Datar & Rajan, 2018). Firstly, telephone services include the mobile phone fees for two managers, which equal $200 each month. As such, it seeks to cover the phone calls that administrators would need to make to communicate with suppliers, clients, staff, and other people. Secondly, it is assumed that internet service fees will be paid by the building or facility administration where the mental health service will operate. In this regard, it is planned to pay $25 as a proportion of overall internet expenses. The internet is crucial for the projects operations as it is assumed that part of the consultations with clients will be conducted online.

Next, the offices rental is also assumed to be constant throughout the year. In total, it is planned to rent five offices for managers and personal consultants and two group consultation rooms for group mental health service providers. It may seem first that the rental space does not fit the necessity of all workers, especially considering that private consultants should occupy one office. However, calculations were made based on the assumption that employees will work in shifts and, thus, use the same office during different days. Moreover, the corporate plan of the TherapyNotes program will be purchased every month for $59 (TherapyNotes, n.d.). Finally, office and equipment maintenance is also regarded as a fixed cost, but it is less predictable than other expenses in this category (Zhang et al., 2017). It is assumed that equipment and space sustenance would require around 10% of the total investments in laptops and mobile phones and rental expenditures accordingly.

Personnel Costs

Personnel expenditures can be both variable and fixed costs depending on the form of payment for labor. In the case of the current project, all the expenditures are predefined, and employees will receive fixed salaries. The latter was determined as an average wage in the region, but small corrections will be made during the process of employment as the experience and qualification of the workers will be considered. As for the number of professionals, the number of six personal consultants and four group consultants was determined to effectively satisfy the yearly demand for mental health services which approximately assumed to be 1800 patients. Additionally, certain amount of money was budgeted to conduct initial personnel training. In particular, the two managers will be taught about specifics concerning the work in the sphere of mental health service and some techniques on how to manage employees and relations with clients and suppliers effectively. Furthermore, both administrators and common workers will have the training concerning the usage of the TherapyNotes program.

Supplies and Investments

Medical and administrative supplies are variable costs as they depend on the demand. However, for the former, the budget assumes the approximate cost of $125 every month, whereas, for the latter, the biggest expenditures will incur during the first month and be equal to $210. Moreover, every three months, $100 would be spent to ensure that there are sufficient supplies, including pencils, papers, and notebooks, all the time. During the other months, supply costs are budgeted to be $10, considering some unforeseen expenses may occur.

Reference

Datar, S. M., & Rajan, M. V. (2018). Horngrens cost accounting: A managerial emphasis. Pearson.

Principles of financial management. (n.d.). UCLA. Web.

TherapyNotes. (n.d.). TherapyNote pricing. Web.

Zhang, C., Gao, W., Guo, S., Li, Y., & Yang, T. (2017). Opportunistic maintenance for wind turbines considering imperfect, reliability-based maintenance. Renewable Energy, 103, 606-612. Web.

Management accounting is an analytical system that produces outputs using inputs and processes that to be implemented by the system to achieve specific management objective and transfers inputs to outputs that meet the system objectives. Management accounting system has three broad objectives: 1) provides information on the cost of products, facilities and other management matters of concern; 2) special scheduling, quality evaluation and continuous improvement data; 3) provides detailed decision-making data.

Management accounting refers to interpreting the accounting information obtained with financial accounting and cost accounting, analyzes, identification, and presentation. Business management accounts help business managers to draft regulations to make decisions and to conduct business on daily basis.

Types of Management Accounting Systems

There are different types of management accounting systems:

1. Cost Accounting System. A method of cost accounting (also is known as product costing) is used by businesses to estimate the cost of their goods for the purposes of performance measurement, stock estimation and cost control. Precise estimate of product costs key to profitability. A business must know which goods are not competitive and this can only be ascertained, when the correct value to the consumer has been calculated. Therefore, a consumer costing system helps to measure the closing the price of stock, work on it and completed stocks of products for preparation of financial statement. There are two main cost accounting systems: job order costing and process costing.
2. Inventory Management System. The management of inventories is about when to order and how to order it aims to minimize total inventory costs in order to achieve high returns. There are tools for inventory management accounting systems: 1) economic order quantity model (am equation that determines the order quantity a company should purchase it inventory to give a set pf production); 2) just in time system (reduces inventory costs, every customer delivery is good prepared and raw materials; the cost moving, storing and buying inventory can be major for a company).
3. Price Optimization System. Price optimization systems are computational programming, estimation, combination of demand with price, stock rates data and pricing recommendations that increase profits price optimization system.
4. Job-Costing System. This is a price allocation for each single product during the analysis of costs. Sewport Ltd. Can use this method if the goods are the same to control order costs.

Cost Accounting

Costs accounting means an accounting process that measures and analyzes the costs of products, projects and production in such a manner that the financial statements report correct amounts. Cost accounting allowing the aid in decision-making company to evaluate it costs. Some types of costs accounting indirect, direct, variable, fixed and operational costs.

Types of cost accounting: 1) opportunity cost and actual cost; 2) direct and indirect cost; 3) explicit and implicit cost; 4) historical and replacement cost; 5) fixed cost and variable cost; 6) real and prime cost; 7) total, average and marginal cost.

Traditional method of cost accounting are: general industrial expenses, distribution of cost with percentages, cost-Centre’s, transport of cost in the products according to the volume of production and products.

Activity-base cost accounting includes: general industrial expenses, distribution of cost based on the cost-drivers that connects expenses with activities, activities, transport of cost in the products according to the activities and products. ABC System is more accurate than traditional cost accounting.

Organizations of different business settings create different management departments and integrate them to achieve their objectives successfully. Accounting is a broad and crucial field in every setting. A relevant aspect of a business to highlight is the managerial and financial accounting departments. By developing and integrating them, the business will certainly be able to control its internal and external environment with success. A key approach to understanding each department role and significance is by comparing and contrasting their distinct functions yet their valuable need together in the business.

To start with role differentiation, managerial accounting job purpose focus on the internal processes of the business. It observes and functions at all levels of internal operations processes taking place, along with examining and evaluating various ways to enhance business profitability and efficiency. In simple words, it is what managers employ to gather all the information needed to track and meet their goals. Under this subcategory of accounting, managers greatly rely on reports related to day-to-day operations and work towards continuous improvement. These reports consist of budget making, estimating product costs, revenue, profit-making strategies, recruitment plans and expansion. The internal operational reports tend to be precise according to their purpose and investigation. They focus on managerial needs, act as a problem solver and decision-maker towards the right solution. It is internally focused to plan and improve the company financial performance. The internal management process is non-compliant to any legislations in terms of its control measures. Job titles like cost accountant, industrial accountant and private accountant monitor the company’s financial data and provide managerial accountants information to support business decisions. A real-life example on how managers under managerial accounting would help improving operations and performance would be when assessing my inventory process and costs at the time of low demand for the product, finding that some of my suppliers are more pricey than others, with proper managerial plans on cutting the cost and maintaining profits, mangers would reduce the order size and rate correspondingly. When revenues and costs are reviewed in comparison to the time before plan implementation it showed a noticeable drop in costs. On the other hand, financial accounting responsibility aims to collect accounting data to create financial statements that are usually prepared at the end of the financial year. In simple words, financial accountants exist to supervise tax payments, maintain the company’s financial records and analyze it to share the performance to their external parties. Managers here prepare reports according to imposed standards and policies like GAAP (generally accepted accounting principles) in the assurance of accuracy and validity of presented data reports. Financial accounting department task is externally focused, they disclose audit reports to the public, financial investors, creditors, government regulators and other industry officials. Mangers estimate calculates and evaluates business performance based on historical records like balance sheets, cash flow statements and staff salaries. Financial accounting concerns on the information to be analyzed and verified ensuring accurate timely delivered reports. to sum up, things managerial and financial accounting jobs require different certification and job training. They vary on role functions at categories like controlling systems, reporting focus, efficiency and timing, data standards and validation. Yet operates collectively to contribute an efficient and profitable business. They share similarities in terms of cost accumulation and cost allocation. Both division concern with financial statements, expenses and revenues, assets and liabilities. Both are financially focused, they report and format data that require educational expertise. A real-life example of how financial accounting helps stakeholders in decision making to understand their role thoroughly would be when if am interested in a company to invest in, in a retail business, I plainly would ask for financial reports and data that presents the company revenue and evaluates its performance within the given time-frame. This is significant to observe because I cannot gamble in investment with no historical performance records. As I view the past 3 years company revenue and I notice a drop in the past year compared to the previous 2 years, with further investigation on the past year unconditional external environments such as epidemic disease affecting the purchasing volume and therefore dropping sales and profits. This relevant disclosure would allow me to firmly reach an educated decision making over my investment in the company.

In conclusion, managerial and financial accounting play an important role in the enterprise. They both are financially focused, working on creating accounting records internally and providing it externally. Managerial accounting focuses on the details under the internal control reports and financial accounting focus on the business as a whole, by integrating the managerial reports to its information and disclosing it to the public. Managers of each department work together to present data that address the past or the future of the business. In a nutshell, Managerial accounting provides companies with quantitative and qualitative information on operational and financial performance. While financial accounting focuses on the external use of this information by creditors and others to assess the performance.

Cost Control

Businesses use cost control ways to watch, evaluate, and ultimately enhance the potency of specific areas, like departments, divisions, or product lines, at intervals of their operations.

Cost management is reviewing each fastened and variable prices, and tries to cut back expenses. Inventory may be a variable value which will be reduced by finding alternative suppliers to supply additional competitive costs. It could take longer to scale back fastened prices, like a lease payment, as a result of these prices square measure typically fastened in a very contract.

Cost management may be a continuous method that begins with the projected annual budget. The budget helps: 1) to prepare and coordinate production, and therefore the commercialism, distribution, service, and body functions; 2) to require the most advantage of accessible opportunities. Because the year progresses, management compares actual results with those projected within the budget and incorporates into the new set up the teachings learned from its analysis of current operations.

The main advantage of cost control value controls in situ is lowering your company’s overall expenses. limit the quantity of cash completely different worker levels can pay, keeping extra money from going out the door. This can permit your company to stay additional cash obtainable, or to take a position in larger amounts of cash in alternative ways in which, like in capital expenses or paying down debt. Cost-control management will assist you clearly determine activities running swimmingly and staying at intervals budget from those perpetually breaking down and overwhelming further bucks. Cost controls a vital issue for maintaining and growing profit. Outsourcing is employed to manage prices as a result of several businesses notice it more cost-effective to pay a 3rd party to perform a task than to require on the work at intervals the corporate and, the experience most frequently doesn’t exist at intervals the organization.

As an associate example, an organization will acquire bids from completely different vendors that offer a similar product or service, which might lower prices. Price management is a very important thing about maintaining and growing profitability.

Benefits of Cost Control

1. Price management gives basis for measurement in operation performance. As standard square measure developed from the study of price operations and existing conditions, they become a pointer to the weaker facet of operation. The potency or unskillfulness may be determined simply by examination of actual and commonplace prices.
2. Standard prices give straightforward comparability. Because of standards, price management exercises influence all the factors of operation. activity, comparison, and analysis of current performance become simpler.
3. Standard cost accounting is essentially an associated economic tool. It helps in price reduction by golf shot effective look into unskillfulness in operations and by eliminating undue paperwork. It suggests commonplace prices consequently.
4. Standard cost accounting could be a basis for budgeting. Budgets square measure ready on the idea of normal prices. Thus, budgeting and commonplace cost accounting along give effective management devices and create managers price aware.

Cost Reduction

Cost reduction may be a systematic and corrective technique utilized by most of the companies to chop the inessential expenses of the products factory-made and increase the general profits. In this method, the essential options and quality of the merchandise square measure unbroken intact and is proscribed to the constant savings within the price of production, administration, commercialism and distribution. The essential purpose is to lower down the price occurring at the time of production, storing, commercialism etc.

Cost reduction isn’t associated with fixing targets and standards, however it’s regarding the standards. it’s associated with the progress method, which may be applied to all or any of the activities of the priority. It focuses on the 2 primary areas:

1. Reduction in expenses. Decrease within the expenditure within the given volume of output, ends up in the decrease in cost
2. Increase in productivity. The general decrease in cost, by increase within the output, for the given expenditure.

Cost reduction may be earned by the mixing of those factors. Further, it’s a touch troublesome to search out the contribution created by every issue to the savings.

Key Differences Between Cost Control and Cost Reduction

The following are the foremost variations between cost control and cost reduction:

1. Aim. Price management aims at achieving the preset prices, whereas price reduction aims at reduction of prices by finding new ways that or ways to possess continuous economy on prices.
2. Exercise. price management may be a routine exercise that’s meted out for attainment of operational efficiency whereas worth reduction aims at permanent and real savings by a nonstop look for improvement. Thus, price control follows a conservative procedure and lacks a dynamic approach whereas worth reduction is dynamic and innovative in nature.
3. Involved with. The tactic of price controls to put down a target, ascertain actual performance, compare it with the target and take corrective action. On the choice hand, price reduction isn’t involved with maintenance of performance in line with the preset standards.
4. Approach. Price management seeks adherence to standards whereas price reduction may be a challenge to the standards themselves. price reduction assumes that there square measure possibilities of enhancements in preset standards.
5. Function. The aim of price management is to visualize that actual prices don’t exceed the preset costs; thus it’s a preventive performance. On the other hand, worth reduction may be a corrective performance as a result of it challenges the planned costs and seeks to enhance the performance by reducing the worth of accelerating production. It’s a nonstop performance of self-analysis for creating additional and additional improvement in performance.
6. Applicability. Price management is mostly applicable to things of prices that have standards whereas price reduction is applicable to each activity of the business.
7. Tools of techniques. Fund management and customary cost accounting square measure necessary tools of price management whereas price reduction makes use of techniques like worth engineering/value analysis, work study, operation analysis, simplification and standardization, ABC’s analysis, etc.
8. Once achieved. Price management is achieved once the values the prices do not exceed the standards whereas cost reduction is not ending. extreme price reduction begins once price management ends.
9. Operation/ research oriented. Price management is operation adjusted whereas worth reduction is analysis adjusted, forever making an attempt to scale back prices through planned analysis.

Cost Reduction Techniques

Cost reduction methods like worth engineering and worth analysis, target costing and life cycle costing are often adopted by manufacturing companies to scale back the fabric cost, labor price and productivity price attributed to production. Their square measures several varieties of price reduction techniques within the accountancy that increase the structure performance. a number of the techniques of price reduction in structure performance square measure as follows: value engineering; value analysis; material handling; work study; quality and measure research; standardization and simplification; quality control; improvement in design.

Value Engineering

Value engineering may be a systematic, organized approach to providing necessary functions in a very project at the bottom price. price engineering promotes the substitution of materials and strategies with more cost-effective alternatives, whereas not sacrificing utility. it’s centered entirely on the functions of varied elements and materials, instead of their physical attributes. price engineering is to boot called price analysis.

Material Handling

Material handling ranges from the movement of fabric, work-in-progress, finished product scraps ete. These materials are units of assorted forms and sizes equally as weight. Material handling could also be a scientific and methodology of moving, packing and storing materials in acceptable locations. the foremost objective of cloth handling is considering the event of cloth flow management inside the organization.

Quality Control

It may be a method through that a business seeks to substantiate that product quality is maintained or improved. Quality management wants the business to provide an environment in this every management and employees go for perfection. this is often done by coaching personnel, making benchmarks for product quality and testing product to visualize for statistically important variations. A major side of internal control is that the institution of well-defined controls. These controls facilitate standardize each production and reactions to quality problems. Limiting house for error by specifying that production activities space units to be completed by that personnel reduces the chance that employees are often involved in tasks that they are not have adequate coaching job.

Quality and Measure Research

The measure of quality, whether or not the merchandise or service, needs the gathering of analysis of knowledge, usually expressed in terms of measurements and metric. Measurements ar created primarily to achieve management of the project, therefore be able to manage it. They’re additionally accustomed judge however shut or however way the firm is from the objectives set within the set up in terms of completion, quality, compliance to necessities etc. Metrics involve 2 main gettable goals that features data and accomplishment.

Conclusion

The two techniques value management and price reduction are employed by several producing considerations to diminish the value of production. Value reduction contains a larger scope than value management as value reduction is applicable for all the industries, however value management is applicable solely to the industries wherever pre-optimization of the value that isn’t however incurred is feasible. Value management works as a road map for the organization to incur prices as per the set normal. On the opposite hand, value reduction challenges the established standards by decreasing the prices and increasing the profit.

Example

Xiomi is a Chinese electronic company which was founded in the year 2010. Xiomi entered the Indian market on 2014 by beating all the competitors in the budget segment of mobile market. Xiomi constitutes of maximum Market shares in India. Xiomi is famous because it provides high end specs mobile at lower cost, But still Xiomi is able to handle its profit ratio.

The key cost control techniques which xiomi uses are as follows:

• Xiomi doesn’t spend much amount in marketing unlike other companies. It takes care of marketing through its social media handles. Xiomi does not have any brand ambassadors, for them it’s their fans who are brand ambassadors. Example: before the launch of mi note series xiomi made a announcement to choose the top 100 active members in mi community and handed over to them the phone for beta-testing before the launch. Such type of marketing helped the brand to attract more than 300,000 users.
• Xiaomi follows a direct-to-retail model which implies a shopper directly comes and buys a tool either on the web site or that of a partner’s (e-commerce). A business-to-customer model helps Xiaomi cut prices by bypassing the standard distribution model together with stakeholders like master, regional, small distributor and distributor. Many brands find you losing from 5 to twenty per cent margin as they follow the standard retail model.
• Xiaomi additionally manufactures its devices regionally. It helps save prices due to a friendly tax structure that the corporate enjoys vies-a-vies imports. In terms of value, native sourcing reduces the time interval in obtaining the product quickly to the market as compared to imports from China that need advance designing of 2 to 3 months. The asset that is stuck within the system is lower once one is producing regionally as against imports.
• Xaomi’s product relish an extended life cycle of fifteen to eighteen months. For instance, Redmi a pair of and Redmi Prime launched in 2015 however still sell as they continue to be competitive devices in terms of options and worth. With long life cycles, element prices go down drastically

Thus these were some of the techniques which were followed by xiomi in cost control which helped them to gain market share in the mobile phone industry in India.

Are you aware that the current world is investing more in spatial research than terrestrial study? Space inquiry is the discovery of celestial structures in outer space implemented by ever-evolving technology. Furthermore, Space exploration has facilitated digital communication, biological research, and an increased understanding of astrophysics. However, the cost is questionable considering humanitarian hardships.

An aspect of the spatial study that is often overlooked is digital communication. For a significant portion of the world’s population, sharing information via mobile phones, laptops, and other electronic devices has become second nature. This interaction is lubricated by satellites, one of mankind’s most prodigious aerospace inventions. Today, satellite communication has given impetus to other valuable projects such as weather satellites. The prediction of unforeseen weather fronts has been successful through this discovery. With objectives as significant as cancer research, space exploration may seem poignant given the humanitarian problems Earth is facing however, counterarguments only consider the disadvantages that accompany spatial exploration – an example would be the cost of procedures. Finding the cure to cancer is not a sprint, but a marathon. Modern research suggests that the cure could be found in space. In Earth-bound labs, scientists struggle to study changes in cell growth therefore, bacteriologists believe that using the distinctive microgravity environment aboard the International Space Station, we can expedite a series of research investigations in making further advancements in cancer therapy. In terrene labs, cells are unable to mimic the 3D architecture shaped by proteins and carbohydrates of a working human organ. As a result, cells grow flat which is disadvantageous as cells cluster together simply in space and replicate cell activity in a better way. With rapidly advancing technology, scientific research is becoming facile. The neuroArm surgical tool for treating brain tumors is a present-day invention that has its roots in Space station technology. Human patients are already benefiting from this robotic assistance as part of clinical trials at Calgary’s Foothills Hospital. With that in mind, is space exploration a waste of money?

The Battle of the Billionaires. Is it merely the latest plaything for the wealthy? We’ve now entered a new era in exploration, billionaires in space, where some of the most affluent men are propelling themselves to new heights in their private rockets. Amazon founder Jeff Bezos, business investor Richard Branson, and entrepreneur Elon Musk are the three notable magnates in this contest. The competition between the world’s richest men to grow their space companies has been dubbed the ‘billionaire space race,’ with Branson and Bezos seeking to get a piece of the burgeoning space tourism business, and Bezos and Musk vying for lucrative government contracts, the stakes are high. However, since they both flew to space in spacecraft manufactured by their respective firms, earning international headlines, Branson and Bezos’ rivalry has taken center stage. Elon Musk’s SpaceX, not to be outdone, is planning to launch its first tourism trip later this year, using remarkably more powerful rockets capable of carrying NASA personnel into Earth’s orbit for multi-day excursions. The fundamental danger of thrill-seeking via spaceship is that it diverts attention away from problems on the ground. Numerous citizens expostulate space investigation and attest that we should devote greater resources to combating global warming and ocean exploration which is an admissible argument. Ocean exploration does not necessitate lift off from Earth; rather, it enables us to go deep underwater and investigate unknown regions in search of answers to questions regarding climate change, global warming, carbon dioxide removal from the atmosphere, and maintaining sufficient supplies of mollusk to minimize the risk of world hunger. The scientific understanding obtainable from our planet, especially from animals that live in severe environments, is considerably more valuable than that acquired from space. Delving into oceanic research and improved cancer treatment is crucial therefore funds should be split equally to understand each region in depth. All three billionaires have comparable but separate interplanetary objectives, with the goal of the private sector being able to deliver satellites, people, or cargo into space for a cheaper price and quicker than in previous decades. But, as much as the event is about race, it can also be about the eccentric personalities and egoism of some of the world’s wealthiest individuals.

Money, money, money! The most prominent dispute against space exploration is the preposterous cost. Well, how much is disbursed? On an annual basis, NASA spends $18.7 billion. Moreover, $209 billion was spent in total on the shuttle program. NASA’s one-year budget, according to oceanographer Bob Ballard, could finance NOAA’s ocean exploration for 1,600 years. Furthermore, the National Cancer Institute receives federal funds of $4.9 billion each year which is a minuscule amount compared to that of space inquiry. The prodigious expense of space-related operations could be utilized for earth-related research, education and more appreciably, terminating world poverty. This viewpoint has also been endorsed by well-known personalities in our society. Martin Luther King enunciated ‘If our nation can spend twenty billion dollars to put a man on the moon, it can spend billions to place God’s children on their own two feet right here on earth,’. On the other hand, it could be argued that this analogy is flawed. A by-product of interstellar travel is scientific knowledge, which has benefited an incalculable number of people since the dawn of space missions. How do you propose to purchase MRI machines without the digital image processing NASA developed? How would we drink clean water without the electrolytic silver iodizer created by NASA? How would we have athletic shoes such as Nike Air if it weren’t for suit construction technology developed by NASA? Although this is a controversial topic, space exploration has truly generated knowledge that assists humanity. Without it, there would be a stagnation in development.

To conclude, space exploration advances accurate technology and contributes to life-changing discoveries. Due to the countless problems that still need to be solved on Earth, the cost of doing so is exorbitant, if not ludicrous. Nonetheless, the understanding of spatial science that this research has applied is amazing.

Background of the Study

Financial management is one of the most critical aspects in a business operation. The difference between what accounting principle are followed varies on the nature of the business itself. Thus, one of the most common principle used in the practice is cost accounting. The importance of this cost accounting in management is that it records the company’s cost which influences the value of the company in the profit-driven operation (Drury, 2013). By doing so, up-to-date financial information can be found within the organization since it is always recorded and tracked at the same time. Diagnosis on financial analysis of the company’s condition tells the investors, the government and other significant users the performance and productivity of a company through financial statement and its annual reports. It also portrays the historical record, deals with predictions of future sales and revenue. A company’s management can know more of its failures and success as they look closely to its monetary value and its role in decision making. One of dynamic and industry competition among airline industry is the unit cost, as services of airline is increasing competition towards towering countries and cities are also getting tight.

The nature of business that is focused is mainly the airline industry specifically in United Arab Emirates. With the multiple airline company in the industry we can further investigate to what extent they apply cost accounting in their financial management. The chosen airline for the research is Emirates airline because it is one of the leading airlines globally that seeks to have a wide scope in financial option (International Air Transport Association, 2015). Aside from this Nataraja and Al-Aali (2011) stated that Emirates is not only known to be profitable in the industry but also it operates three of the ten world’s longest non-stop flights from Dubai to Los Angeles, San Francisco, and Houston. They have also added that it is wholly owned by the Government of Dubai however it runs on a commercial basis and does not receive any financial assistance or support from the government.

Hence, the main point is to search for challenges and limitations of cost accounting in this sector in order to establish safeguards that would protect the financial information and increase the efficiency of the principle. This will also cover any operational strategy that relates to the techniques in cost management or accounting. The current steps that Emirates is also undergoing to understand more the nature of the airline business. Since most of the people think that this ia not actually complicated however, when you look into the details of how service sectors work, there is something unique and complicated at the same time. In this project as Emirate Airlines shows a promising analysis on its profitability and cost efficiency production per seat available kilometer, over a decade of innovation of strategies and management. Airline business is more costly than any other service industry thus it is a good sign from an investors perspective to analyze costing method and standards on how this will affect the business performance. Considering the cost benefit of Emirate Airline will compensate its revenue for the year.

Literature Review

Drury (2013) discovered that there are several cost accounting basics to achieve goals. Hence, these basics is actually developed and used by the management in which it is commonly called as value chain today (Botcher et. al, 2010).

Figure 1. Value Chain for Cost Management

Figure 1 shows that first stage is recording of business events in which stage two immerse through the form of data. These data gathered will be transformed into information by the help of the accountant. And by analyzing and applying appropriate accounting principle knowledge comes which is stage four of value chain and when there is knowledge a decision can now be drawn and formulated by the management in order to attain the organization goals that was set initially.

Additionally, they added a basic formula that every business that offers services in the industry a computation of how operating income is being derived. Thus, the table figure 2 shows the basic computation of the operating income from the total sales for the month or year or quarter (depends normally on the accounting cycle of the firm) all the expenses for the materials, labor and other related operating expenses shall be deducted to the total sales to arrive with the operating income. Afterwards the income tax will be deducted to arrive with the net income.

Figure 2. Net Income Basic Equation for Service costing

Service Costing Basic Formula for Net Income

Sales

XX

Less: Operating Expenses

Materials

XX

Labor

XX

Other Operating Expenses

XX

(XX)

Operating Income

XX

Less: Income Tax

(XX)

Net Income

XX

According to Botcher et. al (2010) there are multiple cost accounting techniques that can be used in order to obtain firm’s objective. Techniques such as balance scorecard which involves accounting report of firms that is included in the company’s crucial factor to success are financial performance, customer satisfaction, internal process and last but not the least learning and growth. Emirates are currently applying the technique called benchmarking in which the firms identified crucial factors to success came from studying the best practices from other firms or business units within the company then implement with revisions on the best practices gathered to improve firms performance in order to match or even beat the performance of those competitors.

Another popular technique listed by Botcher et. al as well is the SWOT Analysis in which a company is given a time to identify the strengths, weaknesses, opportunities and the threats that a certain policy or practice can bring to the company. This is helpful especially if the techniques used requires less time to conduct hence, another way to validate the efficiency and effectiveness of the principle, SWOT is used as a back up technique to avoid any error in the latter.

Cost management assists organizations in decision-making process, planning and control (Drury, 2013). This can be seen on figure three which shows the chronological order of the steps in successful decision making. There are seven identified steps that they have discussed, cost management affects an organization in decision making the first one is identifying objectives. By identifying objectives, a clear route to what the organization wants to do is plotted hence once there is a clear objectives management search for all available alternative courses of action or benefit and option that is favorable to the organization. Thus, if there are alternative courses of action another set of data to prove the efficiency of the alternative will need to be gathered and once enough data or information are garnered management selects the alternative course and immediately implements the decision and wait for a result in order to compare the actual from what was planned. And lastly any discrepancies from the planned outcomes identified will be reviewed and thoroughly validated why it happened in the actual and what is the beat way to prevent it.

Figure 3. Decision-Making, Planning and Control Process steps

Discussion

Cost accounting in Emirates Airlines has areas concerns including advantages and disadvantages (Qasim and Qureshi, 2011). They explained that advantages in terms of establishing a manual that covers the issues of fraud, leakages, duplicate payment, wastage of resources, wrong accounting, incorrect capitalization of assets and the likes. However they had also narrated some disadvantages specifically that the manual was supposed to be a safeguard to the cited issues but it only made it worse due to the lack of knowledge to updated financial rules, low morale of staff who joins during meeting or gatherings, non availability of rules, policies and procedures and many more.

Although it went like that, but when the main issue was identified cost management or accounting became the determining principle for the success of the organization in which it indeed helped sort all unnecessary information and cleared up some reason for the disadvantages. It also helped validate the identified issues and gave ideas to the management in what they can do to improve it before implementing it to the entire population.

Emirates Airlines business cost structure impacts its efficiency (International and Transport Association, 2015). Emirates Airlines had been doing an exceptional performance because of the strategies being formulated and implemented either operational generic, few intensive or diversified strategy it paved the way of success for the Emirates Airlines. They also notice that the most operational was the ‘high quality provider strategy’ which directly associates with the operational activity. Congruently, the association of cost management in terms of the operational strategy of Emirates really proves that this accounting principle works in the way they perceive it.

Another set of operational strategy that they have cited for Emirates is what they call as “be the first to introduce new products.” Since Emirates had already established a mark for being renowned trend setters despite of its conventional view, the several noticeable services are personal entertainment systems in all seats, private first-class suites, use of mobile phones on board, introduction of SmartLanding, SmartRunway safety solutions, and being the first airline to place huge aircraft orders. The idea generation as well of the management anchors with the efficiency of the accounting principle since the company is fully known as one of the trendsetter in their field of expertise.

Recently Emirates Airlines decision in buying its jet rather than face the challenges in doing the latter has been proved to be the exact thing they are doing now since Zhang (2016) stated the Emirates is now open to study foreign acquisitions after a long time of deciding. She added that people nowadays are more comfortable in choosing low cost airlines aside fro its cheaper rate, it is also economically friendly to the organization and most especially to the consumers that is why it is easy to see why Emirates had decided to push through with these strategy. Also she added that this is more rampant in Brazil, Azul since most of the Latin Americans prefers to travel via this type of airline.

Additionally she added that Emirates had acquired 40 percent stake ownership which is equivalent to 70 million USA dollars in Air Lanka, which was the national airline of Sri Lanka in 1998 that they had rebranded to SriLankan Airlines. This acquisition was known to be the best take over example in the South East Asia and Emirates had also signed a 10 year management contract with the SriLankan. The huge step they took to acquire the said airline boost the company’s financial aspect.

With this Zhang stated that Emirates Airline is considered one of the fastest growing airlines in the world in which its not hard to see why, considering the amount of preparation they do to create good operational strategy to sustain what they had they are indeed one of the most prominent airline company. Aside from this it is also known to have a low charges in Dubai International Airport and a low tax regime that they only pay thus leaving the group with only few weaknesses . Hence, there still wide array of opportunity since the company is expanding including those Latin American and Canadian operations, acquiring low cost carriers and linking tourism to sustain the status of the company despite of any upcoming economical crisis.

Figure 4: Emirate Airlines Income Statement 2018

Figure 5: Notes 5 and 7 for Cost and Revenue

Financial Statement for 2018 Analysis

Financial analysis of the company involves the use of data and information primarily on the financial aspect in assessing the company’s performance, make decisions and adjustments in obtaining its organizational goals. There are different methods in financial analysis, in this chapter Emirate Airlines financial statement for year ending 2018 and 2008 will be compared. This method is called horizontal analysis, most specifically deals in the income statement of the company. Each ratios presented are in comparison to the cost structure and cost incurred.

· Profitability Ratio

Gross Margin

Gross Profit

4,086

4.48%

Total Revenue

91,225

This indicates that in every dollar revenue that the company earns there’s a 4.48% return to its profits after paying off its operating cost. Gross margin gives a direct insights on how well the company is earning in terms of its profits.

Operating Return on Asset

Operating Income

4,086

4.63%

Average Total Cost

88,236

This shows that operating return of asset of Emirate Airlines has 4.63% return for every dollar invested per total assets. It is an important profitability ratio that suggest how well the company is using its resources to achieve higher profit and wealth to its investors.

· Efficiency Ratio

Inventory Turnover

Cost of Sales

88,236

36.96522832

Average Inventory

2,387

For cost accounting analysis, inventory turnover is significant in dealing with how often the company sold and replaced its inventory for a given period of time. In this case a considerable high turnover, thus strong sales and services for a big airline industry in dealing with its inventories.

Asset Turnover Ratio

Net Sales

91,225

0.715002312

Average Total Asset

127,587

This ratio indicates that a high percentage of 71.5% shows that Emirates Airlines is efficient enough on using and utilizing the asset of the company in producing and generating sales.

Figure 6: Financial Statement 2008

Figure 7: Note 4 for Revenue and Note 6 for Operating Cost

Financial Statement Analysis 2018 and 2008

As one of the largest airlines across the globe that serves 3600 passengers per week, services at their most luxury level. Thus indeed the Dubai’s national airline company. ‘We implemented initiatives to boost revenues, trim costs, and used emerging technologies to make our business and operations more agile, without compromising on quality or service.’ A statement by Sir Tim Clark, President Emirates Airlines. An analysis is given that shows a ten year data of performance and efficiency from 2008 to 2018.

Figure 8: Profitability and Efficiency Ratio

The above analysis shows that the company as it is growing for almost a decade incurred cost as much as it is exponentially expanding, this tells us that from 2008 cost 33,629M to 88,236M decrease in gross margin is expected with 9.54 percentage difference. Its profitability ratio has significant increased despite its high cost incurred this is due to a 10 year productivity revenue in 2018 of almost half of 2008 amount. It follows that as a Emirate Airline becomes the leading airline industry it gives off high cost of operation as expected and in return gives off full return to investors. After calculating the efficiency ratios we can conclude that its operation improved through the years of service as for turnovers that produces 36% for every dollar of asset and resources obtained with by the company. This is an indication of a strong use of its resources and a better financial conditions.

Figure 9: Ratio Factors of Emirate Airline

2018

2008

% change

Capacity (ATKM) million

61,425

22,078

64.06%

Load carried (RTKM) million

41,250

14,739

64.27%

Load factor %

67.2

66.8

0.60%

Break even load factor %

65.2

62.7

3.83%

Unit Cost (fils per ATKM)

139

148

Operating Cost

88,236 M

33,629 M

61.89%

*data are obtained through Emirates Airlines Financial Statement 2018 and 2008

Over yield has increased of 236 fils per revenue tonne-kilometer across all products. This gives off favorable currency mix and fare increase by 7.2% to 9.3%. As obtained from the financial statements of Emirates Airlines, a unit cost of 139fils per ATKM is obtained from 2008 148 fils due to fuel cost and product innovation. This decrease means that as services and expenditure is increasing it is proportionally level indicating an efficient production and utilization of its asset, as cost increases volume of products and services increases as well.

Cost Method

In general, cost accounting of a seat kilometer is in category length sector that is increasing since it involves fixed cost that is amortized through seats covered by kilometers. Its variable cost, largely involves fuel cost in Dubai are incurred efficiently by flights which are longer and international flights.

Service or operating costing is used, cost method for an airline industry is complicated costing compared to manufacturing and merchandising services as it involves kilometers, seat coverage etc. Emirate Airline used CASK or Cost per Available Seat Kilometer which measures efficiency per operating cost per airline to its available seat kilometers. Lower unit cost indicates an airline is profitable and efficient. Into a more detailed category as to the advantage and efficiency of Emirate Airlines, labour cost promotes the biggest advantage of the company as it has lower employee cost compared to European and other airlines. It has also derives its benefits in a tax free environment , union-free and legacy pension cost. Subsidies in a form of a low airport charges, reflects high seat capacity and passenger bookings. As suggest in a research done by Center for Aviation, European airlines and other international airline industry, “much to the regret of some, an abolition of employee income tax and dramatic cuts in airport charges cannot be expected. Nevertheless, governments should be reducing or removing all additional taxes and levies on air transport and easing any legislative restrictions on labour productivity.”

Conclusion

The cost accounting in Emirates Airlines is recognized to develop proper financial handling and control (The Emirates Group, 2018). This can be proven with the results of their latest financial statement, with an impressive 1,556aed (in millions) profit after tax it only shows how cost accounting or management is very efficient and effective to the company. They also had there strategic Plan for the year 2014-2016, where they has several operational activities that considers both external and internal aspects of the environment, it was clearly seen that they follow and improved their operational strategy to lessen the factors that affects the company. In addition, different factors and categories in its costing fised and variables are essentially significant that gives an advantage of Emirate Airlines among airline companies. Costing and selling among small cities and long flight destinations of airlines ensures that the brand and its services are known and trusted. Thus increased cost for this account in Emirate Airlines are higher; also in depreciation, amprtization and operating lease indugles high expenditiures due to cost of aircraft that involves investing in heavily new aircraft for the company. In terms of landing, parking and flying, it produces a low expense that it almost half percantage as other companies due to Dubai government leniency policies and subsidies. Fuel, factor that has greatest advantage considering it is an oil-rich region but which is largely because of greater oil efficiency among its new aircraft feets.

It is proposed in future studies that to foster effective management accounting, the business should firstly analyze the major outcome of implementing cost management to determine the specific needs of the organization (Drury, 2013). With the value chain approach earlier, the mire you investigate and identify the issues the mire it will become clear and easy to give safeguard since you have an idea of what is the root cause of the issue. Hence, it is really not necessary to be very keen in following the steps but it can be a guide as to what you can do first and then to what you have decided that suites the nature of the business.

References

Websites

1. Costing Methods and Important Costing Terms. (2018, October 10). Retrieved from https://www.google.com/amp/s/www.edupristine.com/blog/costing-methods/amp
2. Emirates ends 2017 on a high note reaching fleet and product milestones. (n.d.). Retrieved from https://www.emirates.com/media-centre/emirates-ends-2017-on-a-high-note-reaching-fleet-and-product-milestones
3. Financial Analysis – Overview, Guide, Types of Financial Analysis. (n.d.). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/types-of-financial-analysis/
4. Financial Ratios – Income Statement | AccountingCoach. (n.d.). Retrieved from https://www.accountingcoach.com/financial-ratios/explanation/3
5. Financial transparency | Our business model | About us | Emirates. (n.d.). Retrieved from https://www.emirates.com/english/about-us/business-model/financial-transparency.aspx
6. Hargrave, M. (2003, November 24). What Is Inventory Turnover? Retrieved from https://www.investopedia.com/terms/i/inventoryturnover.asp
7. IATA. (n.d.). Page not found. Retrieved from http://www.iata.org/publications/Pages/aeronautics-charges-monitor.aspx
8. Operating Return on Assets (ROA) – Finance Train. (2013, September 8). Retrieved from https://financetrain.com/operating-return-assets-roa/
9. Unit cost analysis of Emirates, IAG & Virgin; about learning from a new model, not unpicking it. (2014, January 11). Retrieved from https://centreforaviation.com/analysis/reports/unit-cost-analysis-of-emirates-iag–virgin-about-learning-from-a-new-model-not-unpicking-it-147262

Journals and PDFs

1. Blocher, E. J., Stout, D. E., & Cokins, G. (2010). Cost Management: A Strategic Emphasis. Retrieved from 978-0-07-352694-2
2. Drury, C. M. (2013). Management and Cost Accounting. Springer.
3. Nataraja, S., & Al‐Aali, A. (2011). The exceptional performance strategies of Emirate Airlines. Competitiveness Review, 21(5), 471-486. doi:10.1108/10595421111171966
4. Qasim, S. S., & Qureshi, T. (2018). Implementing an Effective Cost Control Strategy at Stations: Case Study of PIA. International Journal of Experimental Learning & Case Studies, 43-50.
5. The Emirates Group. (2018). Annual Report 2017-2018. The Emirates Group.
6. The Emirates Group. (2018). Strategic Plan 2014-2016. The Emirates Group.
7. ZHANG, Y. (2016). A Strategic Analysis of Emirates Airline. DEStech Transactions on Social Science, Education and Human Science, (icaem). doi:10.12783/dtssehs/icaem2016/4347

Introduction

1-Importance and objectives of joint cost allocation:

• In a system for estimating the cost of absorption, the cost of production must be charged to the costs of the product. When more than one product participates in some common production costs, a basis must be established for sharing these costs.
• Joint costs are needed for measuring profitability of joint products.
• Joint costs are needed for pricing decisions.
• Joint costs are part of cost payment under contracts.
• Joint costs need to be allocated for inventory and cost of goods sold.
• Joint costs are used to compute and allocated total product cost.

2- What Is The Effect Of Corona Virus On Cost Accounting?

Corona viruses are a group of widespread viruses known to cause diseases ranging from common colds to more severe diseases, such as Middle East Respiratory Syndrome (MERS) and severe acute respiratory syndrome (SARS). The newly created corona virus (nCoV) is a new strain of the virus that has not been previously discovered in humans (3). Measures to prevent transmission of the virus include limiting the movement of people, restricting flights and other travel, temporarily closing companies and schools, and canceling events (4). It does not directly affect cost accounting, but rather affects all economic activities that require cost accounting. In my opinion, to avoid the crisis and complete work, must work from home to avoid mixing and spreading the disease.

3-What Is The Effect Of Corona Virus On Joint Cost?

*Joint cost allocation:

Cost incurred in a process that yield difference several products for example (petrochemicals, dairy products and plastic) and we cannot determine the profit and loss only after the allocation.

*Importance of joint cost allocation:

Cost becomes useful when expenses are at the same time in favor of two or more divisions of the company. As such, the accounting department should allocate twice the cost, in the appropriate proportion, to the corresponding departments.

The shared cost is a useful tool to encourage budgetary cooperation between departments.

It is not always possible to precisely separate cost or shareholding between beneficiaries, but shared cost is an acceptable method of accounting for most companies.

*Main core:

Ex:

Joint Cost 10000

A 1000 units 8€

Splitoff Point B 3000 units 2€

The Splitoff Point: Is the point when the costs of two or more products can be separately identified. After splitoff, each product incurs separable (or independent) costs. Allocating joint costs using sales value at splitoff may be the most effective method for planning and budgeting for joint costs.

*Joint cost allocation methods:

1- Physical Units (Output) :

Physical output

weight

allocation cost A B Total

1000 3000 4000

0.25 0.75 1

2500 7500 10000

– Income Statement:

2-Sales revenue = units sold × selling price

= 8000 – 2500 = 5500 A

= 6000 – 7500 = (1500)

*Further Processing:

By adding price to selling price we can sold products more expensive and yield difference several products just as (steel, wood and plastic)

Firms that produce more than one product must understand accounting concepts, such as common and overhead costs. These theories explain differences in cost allocation and help companies accurately forecast costs and profits.

Shared costs are not only shared with products, but may be shared in operations, functions, responsibilities, customers, sales territories, time periods, and similar costing units. For example, the salary of the director of the production department who manufactures three products is an example of the overhead cost.

in relation to the products. But the salary is the direct cost of the production department. (3) joint cost allocation are doubled.

Literature review

The aim of the analysis is to establish criteria and methods for solving these problems in a fair manner. In a fair and reasonable manner. Thus cost allocation is ultimately concerned with justice. Methods and principles of cost allocation

That you are likely to find acceptance should somehow be based on primitive,

Logical ideas of justice and fairness.

But what exactly does a fair word mean? According to Webster (1981),

Stems from dawn. Old German term meaning ‘Beautiful’. Fair Means. (3)

Conclusion

Joint cost allocation is the weighted mean of the various sources. In the process of calculating the costs of manufacturing industries, it is necessary to find a common cost that combines all manufacturing industries, or rather, the unified source cost of these industries. These processes that collect manufacturing industries can occur in the basic stage of production where all products are one common product, which is the source, and thus becomes more effective. The joint industries process continues until you reach the point of separation, where at this point it is necessary to separate the transforming products from the source and deal with each product separately. To avoid the virus and protect workers and employers they must work from home and everything done online if it was meetings or projects and all departments of accounting should work from home too.

Reference

1. Organization, World Health. [Online] https://www.who.int/ar/health-topics/coronavirus.
2. Baur, David. www.pwc.ch.com. [Online] 18 March 2020. https://www.pwc.ch/en/insights/accounting/accounting-implications-of-the-effects-of-coronavirus.html?fbclid=IwAR3Qj-WSemiO_eqAvXAYjsXLouTDJAxlIMhWjHDiFi8_oZicfD8Tf2ib9QY.
3. article, Best. [Online] https://ar.bestarticleonline.com/joint-common-costs.
4. YOUNG, H. Peyton. [Online] http://pure.iiasa.ac.at/id/eprint/2596/1/XB-85-003.pdf.
5. Managment, Product Life Cycle. www.link.springer.com. [Online] 11 April 2015. https://link.springer.com/chapter/10.1007/978-3-319-17440-2_1.
6. Lumen. www.courses.lumenlearning.com. [Online] https://courses.lumenlearning.com/wm-accountingformanagers/chapter/value-chain/.

Introduction

The research study seeks to explore the role of cost accounting in the Etihad Airways. The research methodology chapter helps in identifying the adopted tools and techniques by the researcher to gather the essential information and data for a purpose of analyzing the given research topic. The research methodology chapter allows the reader to evaluate the nature of the entire research study (Mackey & Gass, 2015). The main goal of cost accounting is to maintain accurate and up-to-date product costs. The cost accountants of an organization closely work with the production personnel in order to report and measure the manufacturing costs. Moreover, cost accounting in organizations helps in profit analysis, formulate the future strategies, developing the budgets and decrease the overhead costs. In order to understand the role of cost accounting in Etihad Airways, the researcher has collected both the primary and secondary data. Primary data has been collected by conducting online survey with the employees an interview session with the managers of Etihad Airways. The researcher has adopted post-positivism research philosophy followed by descriptive research design and deductive research approach.

Research Method Outline

As per the consideration of the research philosophy, the researcher has adopted the post-positivism research philosophy as it helps the researcher to access the previous research studies in more effective manner compared to the other research philosophies such as positivism, interpretivism and realism (Kumar, 2019). The researcher has used the deductive research approach as it allows more time for practice and interpretation compared to the inductive research approach. Adoption of the deductive research approach has helped the researcher to describe the research concept more quickly and explicitly (Fletcher, 2017). As per the consideration of the research design, the researcher has used the descriptive research design as it has helped the researcher to observe the participants based on an unchanged environment.

Data Collection Sources

The researcher has collected both the primary and secondary data. The secondary data has been collected from relevant books, journals, articles and websites. The researcher has used the secondary data to offer the readers a better insight into the literature review part. The researcher has collected the primary data by conducting online survey with the employees and interview session with the managers of Etihad Airways. Survey has been conducted with 35 employees and interview has been organized with 5 managers of Etihad Airways. The researcher has used Google Form to conduct the survey and has provided total 15 close-ended questionnaires to each employee. For the mangers, the researcher has provided total 5 open-ended questionnaires to each manager in order to obtain their opinion based on the role of cost accounting in Etihad Airways.

Research Analysis Method

In order to analyze the primary quantitative information gained from the survey, the researcher has used descriptive analysis method. On the other hand, the researcher has used narrative analysis method in order to analyze the primary qualitative information obtained by conducting interview with the managers. Adoption of narrative analysis has helped the researcher to represent different point of views of the each interviewed manager.

Research Sample

The researcher has used the probability sampling method in order to select the employees for the survey. In order to select the managers, the researcher has used non-probability sampling method. The researcher has conducted the survey with 35 employees and has organized the interview with 5 managers of Etihad Airways. Therefore, total sample size includes 40 respondents.

Descriptive Data Analysis

Primary Quantitative Data Findings (Survey)

1. What is your gender?

Figure 1: Survey Response

Source: (self-developed)

Analysis: As per the above survey repose, it has been identified that the female employees have viewed more interest compared to the male employees in the Etihad airways. Therefore, it can be said that the organizational management of Etihad Airways offers equal opportunity to the female employees same as the male employees. There is no gender discrimination in the workplace.

2. What is your age?

Figure 2: Survey Response

Source: (self-developed)

Analysis: As per the analysis of the above survey report, it has been identified that most of the respondents are from the age group 31-45. It specifies that the organizational management of Etihad Airways tries to retain the middle aged employees as they are both enthusiastic and experienced. 37.1% respondents are from the age group 18-30 and such respondents can be considered as the young employees of the organization. Etihad Airways also prefers the employ the young employees as they are more energetic compared to the older employees.

3. For how long you are working in Etihad airways?

Figure 3: Survey Response

Source: (self-developed)

Analysis: Most of the respondents are working in Etihad Airways from 4 to 6 years. These employees must be considered as more experienced compared to the employees who are working in the organization for 1 to 3 years. Opinions from the experienced employees will help to gain more information regarding the role of cost accounting in the Etihad Airways.

4. Does cost accounting help in analyzing cost structure of Etihad Airways?

Figure 4: Survey Response

Source: (self-developed)

Analysis: According to most of the respondents, cost accounting helps in defining the cost structure of Etihad Airways. Cost is considered as a generic term that is frequently used in the organization and cost accounting of Etihad Airways includes classification and recording of such costs. Such costs can include factory cost, selling cost and direct cost. However, few respondents have not agreed with the fact as sometimes cost accountant of the company fail to focus on controlling the cost of labor, inventory and other different overhead costs. Cost accounting of Etihad Airways helps the organizational management to develop basic distinction between the variable and fixed costs.

5. What is the main objective of using cost accounting for your organization?

Figure 5: Survey Response

Source: (self-developed)

Analysis: According to most of the respondents, the main objective of using cost accounting in Etihad airways is to ascertain the cost of services and goods. Expenses that occur while producing the airline services and goods are considered as the cost. Under the cost accounting, the costs are allocated, classified and examined with the focus to find out the total and per unit cost of the airline services and goods. Second leading objective of cost accounting of Etihad Airways is to control the cost of expenses through using different techniques such as budgetary control and standard costing. The third leading objective of cost accounting in Etihad airways is to identify the costing loss or profit by determining with revenues the costs of such airline services and products through selling which revenue have been achieved. Few respondents have also pointed out that cost accounting helps in developing difference between variables and fixed cost in order to fix the product price.

6. How far do you agree that cost accounting helps in strategic decision making of Etihad Airways?

Figure 6: Survey Response

Source: (self-developed)

Analysis: As per the analysis of the above survey report, it is confirmed that cost accounting of Etihad Airways helps the organizational management to develop the strategic decisions by developing a proper idea about the financial state of the company. Ehen the organizational management is aware of the cost, they can identify where profit level is lacking and it becomes easier for the manager to remove the extra cost that are arising and develop a better finance strategy for the business.

7. Which techniques of cost accounting you use in managerial decision making?

Figure 7: Survey Response

Source: (self-developed)

Analysis: According to most of the respondents, managerial costing technique is used in the Etihad Airways. By this costing technique, the organizational managers can decide the number of units or airline service to be delivered or produced. On the other hand, historical costing is identified as the second leading technique used in the Etihad airways that helps the comparing all the costs after performance of the entire service or process. Few respondents have selected standard costing as the most used techniques that is mainly used to compare the incurred cost with the predetermined cost of the airline service. Direct costing cannot be considered as the most used technique of cost accounting as it has got the least vote.

8. What is main function of cost accounting in Etihad Airways?

Figure 8: Survey Response

Source: (self-developed)

Analysis: According to most of the respondents, cost accounting helps the organizational management of Etihad Airways to prepare the budget by recording the cost according to the predetermined and pre-arranged cost classification. Cost accounting also helps in analyzing the profit by measuring the profit received or earned on each service and to advice the organizational management on improving the profits. Fixing of the selling price has been identified as the third leading function of cost accounting used in Etihad as it offer essential data to fix the selling price. Cost analysis helps in identifying the relation between cost and different cost determinants.

9. How far do you agree that cost accounting helps the organizational management of Etihad Airways to develop better understanding of the variable and fixed cost?

Figure 9: Survey Response

Source: (self-developed)

Analysis: Most of the respondents have agreed with the fact cost accounting helps the organizational management of Etihad Airways in developing better understanding on the fixed and variable cost by developing differentiation between the variable and fixed cost. It allows the organizational management to identify the most ideal price for the airline price.

10. Does cost accounting helps in improving resource planning and allocation?

Figure 10: Survey Response

Source: (self-developed)

Analysis: Most of the respondents have agreed with the fact that cost accounting improves resource planning and allocation of Etihad Airways as the cost accountants of this organization have better understanding on the nature and scope of cost accounting. By developing better understating on the fixed and variable cost, the organizational management of this company can optimize the budget and allocate the resources where they are required most.

11. Which methods your organization uses for costing?

Figure 11: Survey Response

Source: (self-developed)

Analysis: Job costing has been identified as the leading method of cost accounting used in the Etihad Airways as it helps in analyzing the cost incurred for a specific job such as customer service and employee salaries. On other hand, unit costing is the second leading technique that is used by the cost accountant of Etihad to analyze the cost incurred for fixed quantity. Operating costing method is identified as third leading method used in cost accounting of Etihad to measure the cost incurred for the rendered service.

12. Do the managers of Etihad Airways use the reports of cost accounting to better price the products?

Figure 12: Survey Response

Source: (self-developed)

Analysis: according to most of the respondents, cost accounting reports help the organizational management of Etihad Airways to better price the products by analysing, track and record the cost of airline service supplies. The organizational management can also determine the fixed cost such as employee salary.

13. What are the major benefits obtained by cost accounting?

Figure 13: Survey Response

Source: (self-developed)

Analysis: According to most of the respondents, the main benefit of cost accounting is that it helps in controlling the costs by identifying the extra costs incurred in the business and removing them as soon as possible. Offering of essential cost information has been identified as the second leading benefit of cost accounting. In addition to that, cost accounting helps in disclosing the profitable and non-profitable activities by eliminating the activities that cause losses to the firm.

14. What are the major issues in cost accounting used in Etihad Airways?

Figure 14: Survey Response

Source: (self-developed)

Analysis: The main issue of cost accounting in Etihad Airways is failure to forecast the cost and extra cost that can decrease the profit margin. In addition to that, often the cost accountants of this company fail to identify the improvement opportunities that generate waste and enhance the resource consumption. Poor support from the inter-organizational cost management increases the expenses cost of the company.

15. What are the consequences of not isolating the issues of cost accounting?

Figure 15: Survey Response

Source: (self-developed)

Analysis: According to most of the respondents, not isolation of the issues in the cost accounting lead to inaccurate pricing of the products as the organizational management of Etihad Airways fails to differentiate between the variable and fixed cost. Poor financing of the company leads to increase in the budget.

Primary Qualitative Data Findings (Interview)

1. Which methods and techniques of cost accounting Etihad Airways uses?

Managers Response

1st Manager “Operating costing is the most preferable method for cist accounting.”

2nd Manager “Direct costing and process costing.”

3rd Manager “Job costing and standard costing.”

4th Manager “Historical Costing and job Costing.”

5th Manager “Marginal Costing and Unit Costing.”

2. What is the effectiveness of cost accounting to optimize profitability of Etihad airways?

Managers Response

1st Manager “Cost accounting aids the profit analysis”

2nd Manager “It helps in formulating the future strategies.”

3rd Manager “It makes the budget preparation easy”

4th Manager “Cost accounting helps in identifying the extra cost incurred in the business.”

5th Manager “It decreases the overhead costs.”

3. What are major issues you face related to the costing system of Etihad Airways?

Managers Response

1st Manager “Failure to forecast the future expenses”

2nd Manager “The incurred costs get higher than the expected level”

3rd Manager “Ineffective cost control system.”

4th Manager “Lack of double entry system and ignorance of the futuristic situation.”

5th Manager “Development of inaccurate financial and budgeting decision due to ineffective cost control approach.”

4. Which strategies Etihad Airways uses to manage the costing system?

Managers Response

1st Manager “Cost planning that accounts all the cost in records in effective manner.”

2nd Manager “Cost finding is used to estimate and measure the cost of each product, segment and department based on the business operations.”

3rd Manager “Cost analysis helps in determining the relation between different cost determinant and incurred cost”

4th Manager “Cost control is used effectively in Etihad by cost analysis, collection, presentation and interpretation”

5th Manager “Costs of alternative activities products and areas are compared based on the distribution and production field.”

5. How the cost accounting system of Etihad airways can be improved?

Managers Response

1st Manager “By maintaining effective cost control system.”

2nd Manager “Effective removal of the incurred extra costs.”

3rd Manager “Identifying the profitable and non-profitable activities”

4th Manager “Effective plan regarding the cost control.”

5th Manager “Carry out special cost investigations and studies that can be valuable to the organizational management to formulate the plans and determining the cost policies.”

Conclusion

The researcher methodology chapter highlights research strategies and techniques adopted by the researcher to develop the research paper in an efficient manner. Adoption of proper research methodology such as post-positivism research philosophy, deductive research approach and descriptive research design has helped the researcher to complete the research investigation in an effective manner. The researcher has pointed out that cost accounting plays significant role for the development of Etihad airways. Findings result and discussion will be represented in the next chapter.

1.0 Introduction

Cost accounting is an accounting method that gain control a company’s costs of production by assessing the input costs of each process of producing the products and fixed cost as well, such as the depreciation of equipment, insurance and interest expense. First of all, cost accounting measures and records all costs individually, then it compares input results or actual results to help company’s management in measuring their financial performance. From this process costing accounting can help the company to make decisions and resolve operational problems.

The cost accounting system is the framework which the firms used to estimate the cost of products for profitability analysis, inventory valuation and cost control. The reports of a costing system are provided to the internal user such as the chief executive officer and different levels of manager. Because of its use, the reports of costing do not need a specific standard like GAAP, so that the costing system has different types to estimate the cost, it can be various in different companies or different departments, which type is used depends on the company’s decision.

According to the function of the cost accounting system, firstly it has two main types of cost accounting systems, which are job order costing and process costing. Job order costing is used to accumulate manufacturing costs for each job individual, and the process costing is used to accumulate manufacturing costs for each process individually. Secondly, the other types of costing system based on cost allocation, so that it has another two types of costing system, which are the traditional costing system or the activity-based costing system. For the traditional costing system, the function of it is using a single overhead rate and applying it to each job or in each department and it often is said to be a volume-based costing system. And another is Activity-based costing, which involves the calculation of activity rate and application of overhead costs to products based on their respective activity usages, considering the fixed manufactured overhead relate to the products as well. At last, the cost accounting system has two variances for analyzing the company’s operations, which are various costing and absorption costing. Variable costing can allocate the variable manufacturing overheads to inventories, and absorption costing usually can allocate both variable and fixed manufacturing overheads to products. So that variable costing is used to calculate the contribution margin, and absorption costing is used to calculate the gross profit.

2.0 Business Background

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In order to easily understand the process of cost accounting, and how the firms’ accountants use the costing systems to estimate the cost of products, we found a business which is food and beverage business named 1 Malaysia Cafe and Restaurant.

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We did an interview through Whatsapp Video Call and created a group with the owner of the restaurant. The restaurant is located in Sarikei, Sarawak which is roughly 357 kilometres from Kuching. The owner is a 29 years old mixed race women name Nurziana Binti Zulmadia also known as Anna George. The restaurant has been operated for 10 years and they serve Sarawak Local Cuisine. Moreover, they also provide event catering at an affordable price. Their main dish is Mee Udang Galah Sepit Biru. For further information, they can be contact by email, 1msiacafesarikei@gmail.com.

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3.0 Costing system currently used

For the business, the owner is using activity-based costing. The costing system used can be treated as more feasible as the price per menu is assigned not only based on the raw materials involved, but also the overhead incurred during the process. The cost incurred for the menu such as raw materials where for this restaurant their main dish is Mee Udang Galah Sepit, labor costs including the cooks, kitchen helpers, waiters and waitresses along with the rental of their premise as overhead cost is taken into consideration when assigning the price of individual menu item. According to Investopedia, activity based costing also known as ABC is an accounting process that recognise and assigns costs to overhead activities and then assigns those costs to products. An activity-based costing (ABC) system recognizes the relationship between costs, manufactured products and overhead activities. Through this connection, it assigns indirect costs to products less randomly than the traditional methods. They used the same costing system in the past and they didn’t change until now. It is good for operating business, which will be easier to compare two different periods costing result.

4.0 Materials and Labor Involved

For food and beverage business, they have many raw materials for food making process. The owner focus more on their most famous Mee Udang so in the owner’s business, their main dish is Mee Udang Galah Sepit Biru. For the dish of Mee Udang, the highest cost is the cost of raw materials which is lobsters used in the dish. For the lobsters, the owner got the supplies from local wholesaler instead of importing from another country. The reason why the owner is doing so is because she believes that local ingredients are cheaper and can have quality as equal as the imported ingredients. The purpose of doing so is also to ensure that the restaurant can get fresh lobsters daily for their dish. Other raw materials for the dish which consist of the noodles that make up big part of the ingredients list is also acquired from local producer which is daily homemade.

On the other hand, for the direct labor, they have the costs of the salaries for cooks, kitchen helpers, waitresses and waiters. For the manufacturing overhead they also have labor cost of salaries for the cashiers, managers and administration. The fixed cost involved such as rental is also taken into account. Although they operated a small business, but they still have the complete management system, and it can support they for a long time.

5.0 Method used to identify and report the production cost

In operating the restaurant, the owner told us that several main activities for producing process are grouped. The main operating activities such as cleaning, preparation, cooking, administrating and serving customers made up the groups. These groups of activities make it clearer for us that ABC costing system is applicable for this restaurant. We report the costing method according to these groups of activities to comply with ABC costing system. The application of ABC to a restaurant involved the assignment of overhead costs into homogeneous cost pools. An example of a first stage cost driver is the number of hours worked by the employees. Three separate cost pools were created–labor, direct operating supplies, and facility sustaining. The next step of an ABC process involved cost drivers by dividing the total costs of each activity center into activity cost driver pools including three stages which are unit-based, batch-related and facility sustaining. The number of employee hours and units of utilities used are examples of unit-based cost driver. Things produced in batches such as purchasing raw materials or ingredients is example of batch cost driver while facility sustaining cost driver category contains costs that sustain the business general processes such as accounting and marketing. According to ABC theory, each of the activity cost driver pools has its cost assigned to products using a second stage cost driver that is unique to each cost pool. A cost driver pool is distributed to products based on the number of cost driver units it consumes. The overhead cost applied to the product is calculated by multiplying the number of cost driver units with the cost pool rates established during the first stage of an ABC process. Finally, ABC costs that were calculated for each entree is incorporated to the price of menu.

6.0 The benefit of using the costing system in allocating the cost

Since the business is using the activity-based costing system, it allows the owner to trace undistributed operating expenses to individual menu items when the product price of an individual menu item are established where usually very little attention is ordinarily paid to undistributed operating expenses during the establishment of the price. This allow the business to maximize their profit in the highly competitive market where the proper pricing measures is critically important as the profit margin diminished.

Secondly, the activity-based costing system examines all major production activities and allows for the identification and reduction of activities that cost more than the business add in value. As an example, the activities that can be either eliminated or conducted more efficiently by the employees. This costing system really help the owner to reduce organizational waste and in eliminating service delays for the guest since achieving the customer’s satisfaction is 1 Malaysia Cafe priority.

Lastly, by using the activity-based costing system, the owner said that the accounting and marketing functions can cooperatively applied in determining the menu prices at the point where total profits are maximized as well as value is created for customers. This means that the activity-based costing system contributes in the decision-making of price that would have a significant impact to their cafe to compete in the highly competitive restaurant industry.

The owner of 1 Malaysia Cafe is glad to consistently using the activity-based costing system in their business since it helps them a lot in determining the menu prices while maximizing the profit of the business in the same time.

7.0 Limitation of current costing system

Despite all the benefit gained from the activity-based costing system, there are still limitations when using the costing system faced by 1 Malaysia Cafe since the activity-based costing is actually not a common costing system in the restaurant industry. In using the activity-based costing system, all activities should be detailed including the value-added and the non-value added. But the owner said that in their business, non-value added activities such as receiving, storing and moving goods and waiting for process are usually ignored which is not a good practice since most of the non-value added activities are also consuming the resources. Supposedly their business should carefully examined such activities in order to minimize cost of their restaurant.

8.0 Challenges and difficulties

Apparently, the business does find a lot of challenges in allocating the cost. The most obvious that she mentioned was some cost are difficult to estimate. The owner had problem in estimating the food and beverage cost when it was first operated such as portioning. For example, their famous Mee Udang has a lot of ingredient and what they did was they had to measure all the ingredients that is needed to satisfy the customer needs. It was a try and error process and it also must consider the pricing too since customers notice pricing more than portioning.

The second challenge that the owner faced is difficult to estimate the cost. The owners had to determine how to allocate individual costs. With modern computer systems, it is usually possible to track evert cost down to the gram of sugar or salt. But, the cost involved with this level of tracking often outweighs the benefit. Either it should be included in their food and beverage cost because the amount of using it just less such as for making their famous Mee Udang. They should consider the information as costless or not.

The third challenge that they are facing is time. We know that tracing and assigning costs efficiently could be crucial. As for this case, the tracing of the costs varies everyday according to the amount of customers that come to their restaurant. As you know, the restaurant hired an accountant to trace all the costs and yet the accountant spends countless of hours attempting to track every cost of the restaurant. So what the accountant do is to allocate the assigning costs to a cost object rather than trace them to their beginning costs. Which bring to them making a guess when accuracy would be impossible without spending a lot of time on studying the cost object relationship.

9.0 Problems in managing the team

Currently, the amount of people they work are not big which consists of three waitresses, two waiters, one cashier and one cook with few helpers. There is at one point that that they have problems such as their previous cook quit the job because she had to take care of her children but thankfully they managed to find new cook as the demand for the job is high. The restaurant accepts part time workers because the demand of it is high such as the waiters and waitresses. They are not permanent because they are usually high school graduates and waiting to enrol in universities. So far, there is no big problems in managing the team as everything runs smoothly. They are not stubborn but sometimes they come to the restaurant late but it is still okay as some of them live quite far from the restaurant. The owner told that they are very keen when it comes to workers welfare because they believe that without them, the restaurant cannot runs smoothly.

10.0 Cost-cutting Strategies

It appears that the owner of the restaurant did a cost-cutting strategies. What they did was to trim their food waste. Lately, they see a lot of food waste which give an impact to the environment which lead to produce a big amount of methane. Cutting the cost starts in the kitchen. The owner of the restaurant provided their cook a prep list which usually just a list of food items and needed quantities for particular day of the week. The prep list is created in Excel by the cook and the owner of the restaurant. Without the prep list, the cooks tend to over prepare which results in food waste.

Another cost-cutting strategy they did is to use local ingredients. Most of the restaurants use import ingredients which is much more expensive. The owner of the restaurant said that the prefer to use local products and ingredients because it much more cheaper compared to imported. The quality of the ingredients usually the same so it is better for them to use local ingredients. Moreover, they are boosting the local economy and it gives a big impact to the local to give more confidence that their local ingredients are on par with the imported ingredients. They owner has their own ingredients supplier which they sell their local ingredients at wholesale prices.

11.0 Ways to improve a regular accounting process

One of the co-founder of the restaurant said that they need to use the right tools to make the accounting process easy such as the accounting software products that can be used to specify all the expenses and profits that they receive. They can go to courses to learn how to use the software or ask for their accountant to teach them how. They believe that for food sales is to keep track of the amount of money that the restaurant earned during each meal period of the day. It is better if it is recorded daily because the is more accurate if compared to weekly and as for beverage sales it is the same as the food sales. Moreover, they also sure to keep track of their inventory as it plays a big role in the restaurants. They suggested that to keep on track all the expenses such as non-perishable items like paper towels, tableware, and cutleries.

12.0 Conclusion

In conclusion, the cost accounting is a critical accounting process for operating a business, which can illustrate the company’s cost in a year or an operation period. Every business needs to prepare the report of cost accounting even if it is running a small business. Furthermore, the costing system is the most effective issue in cost accounting process, which may relate to the cutting of cost, the reports of costing are important to develop a company’s financial situation in current year. In other words, the reason why is all the companies have the same target is cutting the cost and increasing the profit to promote the company’s development.

If the company has prepared the costs and found the right way to reduce the cost of product, it will have more opportunities and be easier to increase the profit from the knowledge of operating the company in current year. It is also the most efficient way to control the financial operation of company. If the owner or the managers want to control the company, the first thing they need to do is understand the facts of company’s costing and how the company operations are working.

During this process, the company can use the accounting software product to simplify the costing process. Firstly, using accounting software can reduce the time and labor then the company can have more resource to focus on other compulsory stuff. Secondly, the technology is improving so the company should keep pace with the times, so that the company will not lose in the competitive market. According to that flexibility in the use of assist tool is another important thing that companies need to consider.

References

1. Advantages, Disadvantages and Limitations of Activity Based Costing (ABC) System. Retrieved from: http://www.accountingexplanation.com _advantages disadvantages_ and_limitations_of_activity_based_costing.htm
2. Kenton, W. (2018). Activity-Based Costing (ABC). Retrieved from: https:// www.investopedia.com/terms/a/abc.asp
3. How to Apply Traditional and Activity Based Costing, Steps, Results Compared (2019). Retrieved from: https://www.business-case-analysis.com/activity-based-costing.html
4. Activity-Based vs. Traditional Costing, (2018). Retrieved from: https://quickbooks.intuit.com/r/pricing-strategy/activity-based-vs-traditional-costing/

The current year 2019, could be considered a breakthrough year in the field of renewable energies. Solar energy, in particular, has seen a lot of advancement as a whole, since it’s now easier than ever to acquire solar panels, set them up, and harness electricity from the sunlight. But just how beneficial is using this type of energy, not just for the planet, but for ourselves? And most importantly, can it become a replacement for fossil fuels altogether? The short answer is– very beneficial and yes, it can. The long answer is –a little more nuanced than that, let me elaborate. When you think about it closely, it makes perfect sense that solar energy is growing in popularity each passing day, since it’s a concept that is simple to grasp and that anyone can get behind for plenty of reasons besides the better-known benefits of using “green” energy. After all, nothing is more convenient than having all the electricity you consume be generated by that huge star that illuminates us by day and that gives life to all of the living creatures on the planet. In that order of ideas, I present to you the 7 main reasons why you should consider going solar.

1. It’s Cheaper Than You Think

The big problem with renewable energies in the past has always been the same problem associated with new technologies, the cost of producing it. Many governments have a history of subsidizing the research and development of new options to replace fossil fuels, but things are starting to change. Many developed countries are reducing their subsidies to all of the renewable energy programs and in Europe, these are stopping altogether. It seems counter-intuitive until you realize that the costs of production of Solar energy especially have fallen 85% since 2010 becoming considerably cheaper than the highly contaminant coal production, which is currently the most used type of energy source in the world. With this in mind, it’s expected that by the year 2025 green energies, led by solar, start to outperform the coal industry as a whole, in price/energy produced, even accounting for the set-up of new turbines and panels. This means that even though there is still quite a long ride to take before we can completely replace fossil fuels, a trend is starting to set towards the use of renewables and solar energy is at the top of this curve both in popularity and cost-efficiency.

2. As Clean As You Can Get

Fossil fuels have many disadvantages in this aspect as well. Not only is extracting them very expensive, but the methods of transporting them are prone to leaking hazardous materials and while these don’t seem to be a problem for the result, we all have constant energy available to us after all, they pose a serious threat to both the people working in these areas and the environment as a whole. Fossil fuels not only emit Carbon Dioxide, but they also produce Methane which has 32 times more warming potential this gas particularly is produced in its majority during oil extraction, especially if fracking, and during natural gas leaks when it’s transported through the pipeline. Compared to that, while the manufacturing of Solar panels still requires hazardous materials they’re essentially risk-free as long as they’re handled with care. Once the panels are built, they can be easily transported free of risk of any kind of emission during the process which makes them cleaner and safer for workers. And as if that wasn’t enough, the industry by its very nature encourages recycling of panels due to the rarity and high value of the materials involved in building the panels themselves. The cherry on top of the cake is the fact that panels do not emit greenhouse gases during the actual electricity-generating phase which is what makes them viable for long-term, clean energy production. When compared side by side, we can note that Solar Energy is easily better for everyone involved in the process of producing it.

3. Your Lungs Will Thank You

As we just established, fossil fuels imply leaks during transportation. Some of these hazardous substances such as methane, arsenic, and other derivatives of heavy metals bring serious health risks to everyone unlucky enough to be exposed to contaminants and it’s not limited to the people working near them. For example, families living near gas pipes, or anyone living close to an oil pit that’s being exploited through fracking is at risk and even if you live far from these types of places, you still have the risk of consuming poisoned resources like water. The health damage is not light either, we’re talking about afflictions ranging from heart disease, strokes, cancer, and lung diseases like chronic bronchitis to birth defects in newborn children, damage to the kidneys, and the list goes on. But extraction and transportation aren’t the only activities that produce these risks. Air pollution is another factor to take into consideration. Currently, there are cities like Beijing and Santiago de Chile that are filled with smog, in which the risk of being hospitalized for pneumonia due to exposure is ever so high. In Canada, a study shows that older adults are already suffering the consequences of pollution-related pneumonia facing up to double the risk of being hospitalized due to Nitrogen Dioxide (NO2) exposure, this being one of the many polluting agents found in smog. Meanwhile, Solar Panels emit a minimum amount of gases. Widespread use of them would ensure a gradual decrease in the total emission of hazardous materials into the air, which would benefit everyone in the long run. As for Carbon Dioxide (CO2), while Solar Panels still have emissions of it, these are at worse 3 times less than the emissions caused by conventional fossil fuels.

4. You Won’t Believe How Efficient It Is

Solar panels are very reliable at the moment generating energy, gathering solar power, and turning around 18% to 22% of it into usable AC energy per panel, meaning that a big array of panels will have increased efficiency, especially if the weather conditions are favorable. Besides, more modern panels are tested for resistance to wind, ice, snow, and other environmental factors so they interfere as little as possible during the energy process. Essentially, the more panels you have, positioned optimally on your roof, on a favorable day will be more efficient than standard grid electricity, which has losses of power the longer the distance the electricity has to travel, this makes solar energy more reliable. Also, the cost of maintenance of panels is around 300 to 500 dollars, pretty cheap considering that they should be checked every 12 months or so, depending on weather conditions and other variables.

5. You Won’t Believe The Number Of Uses

Now, we can start talking about the fun and interesting stuff, and there is plenty to be said in that regard as well. Turns out that solar panels are not just for roofs and with enough imagination and engineering, they can be applied to anything from small and simple torchlights to very complex irrigation systems for your garden. Yes, modern Solar panels are as versatile as they can get, allowing you to replace not just fossil fuels, but even batteries and other contaminant energy sources. And while these uses may seem obvious, the truth is you can apply them to pretty much anything that requires electricity, yes even security cameras or your next Christmas decorations.

6. There Is Still Room For Improvement

If you think that classic solar panels are the only type, then you would be wrong. For example, one of the most recent breakthroughs in the solar energy field was the development of Solar Cell Fabric, yes, fabric. As you would expect, these are malleable, stretch-resistant, panels that can be adhered to clothing, carpets, blinds, and anything else made of fabric. This gives even more versatility and potential for solar panel use. It also makes them more durable because the classic panels are rigid, glass structures that could be easily broken by hard objects thrown at them. Not enough with that, many other innovations are being researched. Another one of these would be the hairy solar panels, which are essentially nanowires with more capacity of energy absorption than silicon which could lead to up to 40% efficiency, on tiny strings of gallium arsenide cables. Yes, indeed, many of these new solar technologies are pretty much in their infancy but the fact that these tech is being researched and developed as I write this gives us hope that the future is going to be at least partially solar, if not completely.

7. You Can Start Right Now

The saying goes something like this “Be the change you want to see in the world”.We all want a better future, for ourselves and our children, and the best way to start is by doing something that will help ensure our sick planet survives. Amidst all the imbalances that climate change is bringing to the world from unprecedented heat in Germany to dangerously low temperatures in some of the US’ most prominent cities, it’s clear that a change is urgently needed in our societies and the way we produce electricity to supply our needs. The good news is that the solar alternative also has a low barrier to entry. On one side, while the installation of Solar Panels themselves is best left to professional electricians, the cost of setting them up is relatively cheap, with plenty of options for the material of the panels, area to be covered, etc. That will give you a personalized cost depending on your own needs. On the other side, many of the parts of the installation process can be made by anyone skilled enough with electric circuits. The more you can do yourself, the cheaper the final installation cost will be. It will also depend on which company you choose to be the installer of your new equipment and it’s worth noting that usually, the most recognizable brands are the most expensive ones yet not necessarily the best option if what you need is a small to mid-size home installation. And honestly, that is all you need to know when it comes to installing solar panels in your home, and as you can see it’s not as complex as one might originally think.

Final Thoughts

After all of that’s been said, one thing is clear. Sustainable solar energy is a reality and isn’t going any time soon. All evidence shows that one way or the other, at least some part, an important part, of the future of energy, is going to be solar since it’s cheap to install and maintain, less hazardous overall, and simple to understand and use. Now the only thing that’s left to ask yourself is “Do I want to join the energy revolution now?”Changes like this tend to be gradual, meaning that we’re not going to wake up tomorrow and have all the electricity be green. It takes time and most importantly, it takes the effort of all of us as individuals to start adopting the ways of the future. And yes, skepticism is always understandable because it’s also a reality that solar energy just recently started to become a truly viable method of energy production and there is a lot of room for improvements to be made. But if humanity is to advance to more sustainable methods of producing electricity, it will need us all to contribute to the standardization of viable alternatives and right now solar is the most convenient and efficient source available. For instance, it’s safe to say that the biggest benefit of using direct solar energy is that it will allow you to be at the vanguard of an unstoppable trend that will benefit all of humanity shortly while being directly beneficial for your individual needs. So what are you waiting for? These following years are going to be decisive for the future of energy and while nothing is set in stone, odds are we will be seeing a takeover of the energies of the future soon.