What is the importance of cost accounting,

Importance of cost accounting

Management of business concerns expect form cost accountants, a detailed cost information in respect of its operations to equip their executives with the relevant information required for planning, scheduling, controlling and decision making,

To be more specific, management expects from Cost Accounting- Information and Reports from them in the discharge of the following information

1. Control of material cost

Cost of material usually constitutes a material part of the total cost of the product. Therefore, it is necessary to control it as far as possible.

2. Control of labour cost

It can be controlled if the workers complete their work within the standard time limit. Reduction of labour overtime and idle time too helps us, to control the cost

3. Control of overheads

Overheads consist of indirect expenses which are incurred in the factory, office and sales department; they are part of the production and sales cost. Such expenses may be controlled by keeping a strict check on them.

4. Measuring efficiency

For measuring efficiency, Cost Accounting department should provide information about standards and actual performance of the concerned activity.

5. Budgeting

Now-a-days detailed estimates in terms of quantities and amounts are drawn up before the start of each activity. This is done to ensure that a practical course of action can be chalked out and the actual performance corresponds with the estimated or budgeted performance. The preparation of the budget is the function of Costing Department.

6. Price determination

Cost accounts should provide information, which enables the management to fix a remunerative selling price for various items of products and services in different circumstances.

7. Curtailment of Loss during the Offseason

Cost Accounting can also provide information, which may enable reduction of overhead, by utilising idle capacity during the offseason.

8. Expansion

Cost accounts may provide estimates of Production of various levels on the basis of which the management may be able to formulate its approach to expansion.

9. Arriving at decisions
Most of the decisions in a business undertaking involve correct statements of the likely effects on profits. Cost Accounting is of vital importance in this aspect. In fact without proper cost accounting, decision would be like taking a jump in the dark, such as when the production of a product is stopped.