Cost Accounting  

Application of costing and cost accounting principles, method and techniques to science; out, and practice o{ cost control and the ascertainment of the profitization, If Includes the presentation of Information derived for the purpose of managerial decision making”

Advantages of Cost Accounting  

Benefits to Management

Cost Accounting has become indispensable in modern industry. In these days of cutthroat competition, costing helps the management in avoiding wastage, increasing efficiency and exercising greater control over the cost. The advantages of costing may be summarised as follows:

01. Cost Accounting discloses the cost per unit or per job or per contract. If production passes through different departments or processes, then cost accounts reveal the cost of each department or process separately. 

02. Cost Accounts disclose profitable and unprofitable activities: so, steps can be taken to eliminate or reduce those activities from which little or no benefits derived.

03. Cost Accounting will enable the management to measure its efficiency and then to maintain and improve it

04. Information provided by Cost Accounting enables the management in formulating its pricing policies and prepare estimates for jobs or contracts. In case of big contracts, quotation can be made unless the cost of completing the contract can be correctly estimated in advance.

If the contract price is fixed without costing information, it is possible that the price quoted may either be too high, in which case orders cannot be obtained or it mag be too low, in which case the order will result in a loss.

05. Cost Accounts enable the management to know the causes of losses and wastage. Based on the information supplied, suitable measures may be taken to detect and prevent them.

06. A good system of costing affords an independent reliable check on the accuracy of financial accounts. Reconciliation of results shown by cost accounts and that by financial accounts establishes accuracy of both sets of books.

07. The operation of a system of cost audit in the organisation prevents manipulation and fraud and assists in furnishing correct and reliable cost data to the management as well as shareholders, consumers etc.