Jonas & Welsch - Lititgation Support, Finance, EconomicsDocuments Documents Contact Us

Articles and Publications

Recent Developments

Articles by Month
- February 2008
- January 2008
- December 2007
- Archive

Articles by Category
- Personal Injury
- Wrongful Death
- Medical Malpractice
- Lifecare Plan Valuations
- Employment Discrimination
- Labor Practices
- Breach of Contract
- New Businesses
- Forensic Examination
- Financial Regulation

Featured Posts
- "blog 1"

Cost Accounting - Art, Not Science!

2008-02-01 - Financial Regulation

Notwithstanding the marking regiment of my college Cost Accounting professor, cost accounting is an art, not a science. The theory goes that five cost accountants each armed with the same numbers, can determine the cost of an item 6 different ways!

From our experience, this mystical art form can wind its way into quite a few litigations. Maybe the price charged for a particular product or service is defended by the cost to produce or render that service; maybe a damage calculation for lost profits requires the accounting exercise of reducing lost gross profits to net profits; etc.

At any rate, honest, conscientious cost accountants can have differing opinions and approaches to solving a particular problem. It's absolutely essential to recognize at the outset the purpose for the cost-finding exercise. A whole different approach might result when one accountant tries to determine the pricing structure for a new manufactured product while his colleague attempts to quantify product cost on that government cost-plus contract. Using vastly different techniques, both could be "right".

There are many adjectives that modify COST ACCOUNTING. Incremental, fixed, variable, full, marginal, and on and on it goes. The objectives and use of the end product will dictate what costs should or should not be included and how to measure those costs.

If the cost of a product or service plays a pivotal role in your case, it may be wise to review with your expert the various ways the calculation can be performed. A number of different defendable, legitimate procedures could be used.

We don't imply that you should "shop around" to find an accountant who will give you the number you want. We do urge you to make sure the expert accountant understands the purpose for the cost accounting and feels comfortable with an approach that supports your client's position