What are the advantages of cost accounting, Managerial Accounting

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What are the Advantages of cost accounting:

1. Cost accounting as an aid to management: cost accounting helps the management in carrying out of its functions, planning, organizing, controlling, decision making, budgeting and pricing efficiently by providing cost information to the management. The importance of costing to management is as follows:

a. Profitable and unprofitable activities are disclosed and steps can be taken to eliminate or reduce those activities from which little or no benefit is obtained or to change the method of production in order to make such activities more profitable.

b. It enables a concern to measure the efficiency and then to maintain and improve it: this is done with the help of valuable data made available for the purpose of comparison.

c. It provides information upon which estimates and tenders are based: in case of big contracts or jobs, quotations cannot be given unless the cost of completing the contracts can be found out.

d. It guides further policies: it explains the cost incurred and profit made in various lines of business and processes and thereby provides data on the basis of which production can be appropriately planned.

e. It help in increasing profits by disclosing the sources of loss or waste and by suggesting such control so that leakage and inefficiencies of all departments may be detected and prevented.

f. It enables a periodical determination of profits or losses without resort to stock taking.

g. It furnishes reliable data for compromising costs in different periods, for different volumes of output, in different departments and processes and in different establishments.

h. The exact cause of a decrease or increase in profit or loss can be detected. A concern may suffer not because of cost of production is high or prices are low but also because the o/p is much below the capacity of the concern.

2. Advantage to employee: an efficient costing system reduces cost and increases the profits of a concern thus ensuring greater security of the service and increased wages to employee. Cost accounting also helps in introducing incentive wage schemes and bonus plans which bring more reward to efficient employees.

3. Advantage to creditors, investors and bankers: creditors, investors and bankers and other who lend money to the business are also benefited by the introduction of cost accounting in a concern, it enables the creditors, investors and bankers to judge the financial position and solvency of a concern by providing reliable cost data. A concern having a good costing system can attach more investors than a concern without an efficient system of costing.

4. Advantages to the government & the society: cost accounting increases the efficiency of a concern, reduces costs and increases its profits. Thus, it prompts the overall economic development of the country. Better and cheaper goods are made available to the public with the reduction in the wastages and increases in profits the revenue of the Govt, in the form of taxes is increases. The technique of costing are useful in preparing national plans.

 


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