Costco Research Paper

Posted on: 11th May 2023


Describe and discuss how Costco differentiates between financial and managerial accounting, and identify the value of managerial accounting and the unique ethical responsibilities that inherent in the field. The research paper has to be based on the company which is Costco. This assignment is for my Business Managerial Class and we use Horngren's Financial & Managerial Accounting book, if that helps.

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Managerial Accounting as Applied by Costco Company

Managerial Accounting is a system put in place by an institution to provide relevant information to its managers so as to enable them to make an information-based decision for the efficient running of the organization. The system specified standards, provide information for internal consumption and uses both financial and non-financial information. Managerial accounting is, therefore, flexible to the organizational (Horngren, et al. 14). The effectiveness and success of an organization, such as Costco, will, therefore, rely on the on the strength of such a system. Contrary to this, financial accounting is a branch of accounting which deals with organization financial transaction using prescribed guidelines in collecting, recording summarizing and presenting the financial information in forms of report.  Financial accounting puts it emphases on providing accurate and fair view financial position of the said organization to both internal and external interested parties while the managerial information users are internal.

Costco Wholesale Corporation is the world's second largest retailer after Walmart. The success of this retailer lies behind its administrative accounting system referred to us Costco Business Model with four essential features. First is the membership subscription in which its customers subscribe with a service fee of $55 US dollars to cater for lower prices (Horngren, et al. 44). The company, through the application of economies of scale, can buy in bulk from selected suppliers whose products will be exclusive in their retail at lower prices. The prices of her groceries' are always lower compared to other retail compelling her customers to pay for subscriptions. Secondly, the use of loss leaders whose price are always lower, and not like other retails who lower the price of one product, gaining the confidence of her clients. Thirdly, the retailer pays high wages, retirement scheme and other social services to her workers. In return, her employees are highly motivated, and the turnover is low compared to the rate in the industry. Lastly, Costco always keeps a level number of the product thus little store keeping units ( SKUs). On return, her cost of order, tracking, and space is minimized thus reducing operational cost. The managerial accounting model has made the institution to grow rapidly in the United States and across the globe.

Managerial accounting has significant values in the success of any business. Managers are charged with responsibilities of driving the business to a greater height. The success depends on the ability of the management to make a sound information based decision necessitating managerial accounting. Managerial accounting creates median values in an organization namely planning, directing, motivating and controlling.

First and foremost, Managerial accounting creates value in planning. Planning looks at what to be done, how, by who and when. Planning, therefore, requires in-depth information on both financial and non-financial matters. A functional managerial system will, therefore, provide timely information to the responsible manager for strategic planning thus creating value.

Number two on the list is creating value in directing. Managers are responsible for the daily operation. They assign tasks and must give direction on how to be completed. Managerial accounting systems generate a procedure with specific responsibility guideline essential for creating the sense of course.

Thirdly managerial accounting creates value in motivating workers. Human resource forecast ensures that the organization can obtain the right skill and number of people at the time need. Information from managerial accounting is essential in creating a good mix of the workforce now and in the future. Costco Company has been able to utilize managerial accounting information thus creating value in her workforce trough high-wage, good healthcare, and pension schemes.

The forth emerging importance of managerial accounting is that it provide daily information essential in controlling function.  The managerial accounting is responsible for the provision and analysis daily data. Data such as performance reports, timesheets and operational statistics actuate control measures in an organization (Needles, et al. 124).

Lastly on creating value is the evaluation process. Change is inevitable in any forward-looking organization. Managerial accounting information is therefore required so that the managers can evaluate the course of the organization of the body in the light of its objective. Costco can monitor and examine new venture especially those abroad thus reacting appropriately. Financial and non-financial information is necessary for such evaluation

Managerial accounting has its unique ethos applicable to Costco. The first one is the competence of managerial accountants. Managerial accountants ought to carry out their work with required expertise, keeping in mind relevant laws, provide accurate support information while considering limitation and constraints in their work (Merchant and Van 121)

Confidentiality of highest level unless authorized or when legal enforcement is applied is a necessity. Managerial accounting information is passed to relevant authorities using appropriate channels that will maintain confidentiality. Those undertaking managerial accounting roles are required by that ethos to refrain from the utilization of this valuable information for personal gain or illegal activities.

Integrity is an ethos that you cannot go without mentioning in managerial accounting. The responsible accountants are required to bring into the light of users all information likely to influence their decision. Intentional delay or deficiency of such information is unallowed. Managerial accounting, therefore, requires integrity of the highest order.

In conclusion, both managerial and financial accounting are tools useful to the managers. While both touch on financial matters, managerial accounting goes an extra mile to analyze non-financial information unique to the organization for its running. Managerial accounting has unique values and ethos that are essential to its application in any organization.


Works Cited

Horngren, Charles T. Accounting. Pearson Australia, 2013.

Horngren, Charles T, et al. Financial & Managerial Accounting. Prentice Hall, 2012.

Merchant, Kenneth A, and Der S. W. A. Van. Management Control Systems: Performance Measurement, Evaluation and Incentives. Financial Times Prentice Hall, 2003.

Needles, Belverd E, et al. Financial & Managerial Accounting. 2014.


Jordan Barney

Jordan Barney

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