Cost Structure of a Shipping Company

This chapter is concerned with the concepts and theory that underlie the operating cost structure in ocean shipping companies. The concepts and theories considered in this chapter apply to both the classification of operating costs and to those factors which may be reasonably expected to affect the level of such costs.

Accounting for Operating Costs in Ocean Shipping Companies

The cost structure within a firm is typically a function of the cost accounting process. Cost accounting generally is a part of managerial accounting.1 Where financial accounting is concerned with recording actual financial transactions, managerial accounting is concerned with the discovery of relationships in financial data which enhance managerial decisionmaking.2

Eight factors and characteristics differentiate traditional managerial accounting from financial accounting. These factors and characteristics are as follows.3

1. Managerial accounting focuses on providing data for the internal use of an organizations managers, while financial accounting focuses on providing data for external uses by investors and creditors.

1R. H. Garrison, Managerial Accounting, 5th ed. (Dallas: Business Publications, Inc., 1991), 11.

2. Managerial accounting emphasizes the future, while financial accounting emphasizes the current period and the past.

. . .
ure to change standard costs as conditions within an environment change is the first major problem. Such a failure detracts from the ultimate usefulness of the analysis of the variance between actual and standard costs. 2. Adherence to a schedule for the consideration of changes to standard costs, as opposed to considering such changes as the changing situation may dictate is the second major problem. Again, such a failure detracts from the ultimate usefulness of the analysis of the variance between actual and standard costs. 3. Attempts to use a factor to adjust for changing conditions in the operating environment, as opposed to the  19Calvasina and Calvasina, 49. 20Ibid., 4951. development of new standard costs is the third major problem. All too often, this type of approach may conceal that which is actually occurring. It may give credit for superior performance which is not deserved, or it may penalize participants where no such penalty is justified. 4. Attempts to use an "allencompassing product standard," as opposed to the development of standard costs for each unique product is the fourth major problem.21 For standard cost systems to be truly effective, it is essential to maintain integrity in
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