Uses of cost accounting

The main uses of cost accounting as follows:

 

1. Helps in Ascertainment of Cost: Cost Accounting helps in the ascertainment of cost of each product, process, job, contract, activity etc. by using different methods of costing such as Job Costing and Process Costing.

 

2. Helps in Control of Cost: It helps in the control of material costs, labour costs and overheads by using different techniques of control such as Standard Costing and Budgetary Control.

 

3. Helps in Decision making: It helps the management in making various decisions such as –

(a) Whether to make or buy a component

(b) Whether to retain or replace an existing machine

(c) Whether to process further or not

(d) Whether to shut down or continue operations

(e) Whether to accept orders below cost or not

(f) Whether to expand or not

(g) How much reduction in the selling price should be made in case of depression?

 

4. Cost Accounting Helps in fixing Selling Prices: It helps the management in fixing selling prices of products or services by providing detailed cost information.

 

5. Cost Accounting Helps in Inventory Control: It helps in inventory by using various techniques such as ABC analysis, Economic Order Quantity, Stock levels, Perpetual Inventory system and Continuous Stock Taking, Inventory Turnover Ratio etc.

 

6. Cost Accounting Helps in Cost reduction: It helps in the introduction of cost reduction programme and finding out new and improved method to reduce costs.

 

7. Helps in measurements of Efficiency: It helps in measurements of efficiency of operations through establishment of standards and variance analysis.

 

8. Helps in preparation of Budgets: It helps in the preparation of various budgets such as Sales Budget, Production Budget, Purchase Budget, Man-Power Budget, Overheads budget.

 

9. Helps in identifying Unprofitable Activities: It helps in identifying unprofitable activities so that the necessary correction action may be taken.

 

10. Helps in identifying Material Losses: It helps in identifying material losses such as wastage, scrap, spoilage and defective through report on material losses so that the necessary corrective action may be taken.

 

11. Helps in identifying Idle Time and Labour Turnover: It helps in identifying idle time and labour turnover through the report on idle time and labour turnover so that the necessary corrective action may be taken.

 

12. Helps in identifying Idle Capacity: It helps in identifying idle capacity so that the necessary corrective action may be taken.

 

13. Helps in improving Productivity: It helps in improving productivity of materials and labour.

 

14. Helps in Cost Comparison: It helps in Cost Comparisons such as –

(a) Comparison with Standard Figures: Comparison of actual figures with standard of budgeted figures for the same period and the same firm;

(b) Intra-firm Comparison: Comparison of actual figures of one period with those of another period for the same firm;

(c) Inter-firm Comparison: Comparison of actual figures of one firm with those of another standard firm belonging to the same industry; and

(d) Pattern Comparison: Comparison of actual figures of one firm with those of industry to which the firm belongs.

 

15. Helps in checking the accuracy of financial accounts: It helps in checking the accuracy of financial accounts with the help of reconciliation statement prepared to reconcile the profit as per cost accounts with the profit as per financial accounts.