Essay Sample on Cost Center Accounting Practices in Germany and USA

Introduction

Being able to compare the different accounting practices between countries enables company managers to recognize and examine the similarities and differences in business accounting and assists them in making informed managerial decisions that foster the company's sustainability goals. Most costing approaches appear identical with small variations on construction concepts and cost allocation, purpose, quality, and quantity of cost information. Exploring successful cost accounting approaches is a fundamental role that gives insights towards managing organizational performance and modifying their models to resolve business challenges and practical limitations.

Both the USA and Germany use Activity-based costing approaches to provide better managerial information about support activities in production, thus solve problems affecting companies. The USA based Activity-based Costing (ABC) system allocates overhead costs and staff to products based on exactly how those products utilize or consume them. The focus is on the product, and how the product came to be, specifically on cause and effect, linkages called cost drivers. The companies accumulate the costs of a product and then allocate them to individual cost drivers(cause) such as; staff labor hours, machinery hours and the number of set-ups, floor space, organization, product size/weight, sales cost, etc. A product using 40% of floor space is allocated 40% of floor space costs. ABC takes a lot of time through information gathering (incorporating all expenses needed in production and marketing of a product) but is critical in informing a company's long-term decision.

The German cost accounting, Grenzplankostenrechnung (GPK) on the other hand focuses on marginal costs rather than the full costs of production. This approach is particularly helpful in making a company's short-term decisions. GPK is a direct costing method uses product cost in general without allocating them to individual cost drivers. The four elements of GPK (cost center, cost type, product cost, contribution margin) are used to analyze a company's profitability. At the cost center level, GPK only allocates variable cost to products, which provide timely information for short-term decision making. Whereas ABC allocates overhead costs on processes and activities, GBK allocates the costs through the cost center.

Conclusion

Anthony's Orchard is a company involved in marketing, sales and distribution of music as well as working with other music companies to create content. The primary focus of the company is marketing and distribution of music which makes GPK the most suited costing approach. The music industry is a dynamic business that requires timely and constant information to guide short-term decisions. The degree of the company's profitability depends on the ability of the management to make a smart decision based on current demand and supply trends.