Advantages of Cost Accounting

Topics: Cost accounting, Cost, Costs Pages: 3 (576 words) Published: December 4, 2012

1. Fixation of responsibility: Whenever a cost center is established, it implies establishing a kind of relationship between superior and subordinates. Thus responsibilities are fixed on every individual who is concerned with incurrence of cost.

2. Measures economic performance: By applying cost control techniques such as budgetary control and standard costing it helps in assisting the performance of business.

3. Fixation of price: By providing cost data it helps management to fix the selling price in advance. Hence, quotations can be supplied to prospective customers to secure orders.

4. Aids in decision-making: It helps management in making suitable decisions such as make or buys, replace manual labor by machines, shut down or continue operations based on cost reports.

5. Helps in the preparation of interim final accounts: By the process of continuous stock taking it enables to know the value of closing stock of materials at any time. This facilitates preparation of final accounts wherever desired.

6. Helps in minimizing wastages and losses: Cost accounting system enables to locate the losses relating to materials, idle time and underutilization of plant and machinery.

7. Facilitates comparison: It facilitates cost comparison in respect of jobs, process, and departments and also between two periods. This reveals the efficiency or otherwise of each job process or department.

8. Assists in increasing profitability: Costing reports provide information about profitable or unprofitable areas of operation. The management can discontinue that product line or that department which are responsible for incurring losses. Thereby only profitable lines of activities alone are retained.

9. Reconciliation with financial accounts: A well maintained cost accounting system facilitates reconciliation with financial accounts to check the arithmetical accuracy of both the systems.

10. It...
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