Cost Accounting Advatnages - Accounting Basics

What are the advantages of Cost Accounting?

The advantages of cost account are as follows:

Disclosure of profitable and unprofitable activities

The cost, selling price and profitability of the product is minutely calculated by cost accounting.

Guidance for future production policies

The future production plan can be made by using the data provided by the costing department about the costs involved with different processes and activities.

Periodical determination of profit and losses

The periodical profit and loss of the product can be determined by the cost accounting.

Find the exact cause of decrease or increase in profit

The exact cause for either decrease or increase in the profit can be determined by cost accounting. The cause may be higher cost of the product, lower selling price or unused capacity.

Control over material and supplies

According to the department, process, unit of production or the services provided the account for the cost of the material and supplies is taught by cost accounting.

Relative efficiency of different workers

A relevant and suitable plan for wages, incentives and rewards for the workers and employees is introduced by cost accounting.

Reliable comparison

Within and outside the organization reliable comparison of the products and services is facilitated by cost accounting. Cost accounting also facilitates highest efficiency levels of operations with lowest level of product.

Helpful to government

Cost accounting helps the government in planning and policy making about import, export, industry and taxation. The excise, service tax and income tax can be accessed by cost accounting. Readymade data is provided to the government in fixing the price, tariff protection etc.

Helpful to consumers

Cost accounting helps in building confidence in the customers and helps in reduction of price due to reduction in the cost.

Classification and subdivision of cost

The cost is classified according to the department, process, product, activity as against financial accounting which provides the consolidated net profit or loss of an organization.

Find out adequate selling price

The optimum selling price of the product can be determined by using costing.

Proper investment in inventory

Shifting of dead stock items or slow moving items into fast moving items may help company to invest in more proper and profitable inventory. The inventory is maintained at the most optimum level either in terms of investment or a variety of stock.

Correct valuation of inventory

Being an accurate and adequate valuation technique, cost accounting enables an organization to reliably and exactly value the inventory.

Decision on manufacturing or purchasing from outside

The data provided by cost accounting enables the management in deciding whether in-house production of the product is profitable or not and helps the management avoiding heavy loss due to wrong decisions.

Reliable check on accounting

An accurate and most reliable system of accounting is Cost accounting. The results of financial accounting are cross checked by cost accounting by using periodic reconciliation of the cost accounts with th financial accounts.

Budgeting

One of the important tools of costing is budgets and these budgets are prepared by cost accounting. Cost, Revenue, profit, production capacity, efficiency of workers is showcased by Budgets. A check on the misdirection of the activities of the organization is kept by the budget.

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