Advantages And Disadvantages Of Cost Accounting Pdf

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advantages and disadvantages of cost accounting pdf

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Everything you need to know about the advantages of cost accounting. Cost accounting provides tremendous help to a business in its routine and non-routine decisions. The primary advantage of cost accounting, of course, is that it shows precisely where costs are incurred, giving a realistic basis for cost-cutting. It enables management to attribute cost to those units responsible for incurring them.

Advantages & Disadvantages of Cost Benefit Analysis

This is done with the help of valuable data made available for the purpose of comparison. For example, if material spent upon a pair of shoes in comes to Rs and for a similar pair of shoes the amount is Rs in , the increase may be due to increase in prices of material or more wastage in the use of materials or inefficiency at the time of buying or unnecessarily high prices paid.

In case of big contracts or jobs, quotations cannot be given unless the cost of completing the contracts can be found out. 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,. This helps in maintaining costs at the lowest point consistent with the most efficient operating conditions. A concern may suffer not because the cost of production is high or prices are low but also because the output is much below the capacity of the concern.

This fact is revealed by cost accounts only. A good system of costing promotes prosperity of the business and thus ensures greater security of service and adequate reward to workers. A sound business concern with a good system of costing can attract more investors than a similar concern without an adequate system of costing.

It facilitates the assessment of Excise Duty and Income Tax and the formulation of policies regarding industry, export, import, taxation etc. It also facilitates the preparation of national plans for economic development. It provides ready figures for use by the Government for application to problems like price fixation, price control, tariff protection, wage level fixation, payment of dividends or settlement of disputes. The ultimate aim of costing is to reduce cost of production to the minimum and maximise the profits of the business.

A part of the benefit resulting from the reduction of the cost is usually passed on to consumers in the form of lower prices. Besides, the installation of a costing system will infuse confidence in the minds of the public about the fairness of the prices charged. Costing has a more important role to play in public enterprises than in private enterprises.

In public enterprises, primary objective is not to earn profit but it is to serve the society by providing quality goods at cheaper rates.

Therefore, whatever limited information the usual profit and loss account can give in case of a private enterprise, is not available in case of a public enterprise. The efficiency of a public sector can, therefore, be best judged by comparing its cost of production with the cost of production of its counterpart in the private sector. Public enterprises lack the personal initiative and interest of private enterprises. A good system of costing ensures efficient and effective control through a proper analysis of their working.

It provides for graded financial control over expenditure and avoids conflict of authority. It measures efficiency and profitability of the undertaking to justify its running in the public sector.

It helps management in fixing reasonable selling prices for the products manufactured or services rendered by public enterprises. Cost accounting like other branches of accountancy is not an exact science but is an art which has developed through theories and accounting practice based on reasoning and common sense. Many theories can be proved or disproved in the light of conventions and basic principles of cost accounting. These principles are not static but changing with the change of time and circumstances.

It is possible that two equally competent cost accountants may arrive at different results from the same information. Keeping in view this limitation, all cost accounting results can be taken as mere estimates.

Moreover, no one cost is suitable for all purposes and under all circumstances. Virtually its calculation depends on the use to which the data are required to be put to. Because of inclusion of some items of cost on estimated basis it is difficult to have actual true cost. On this basis when the valuation of stock is done, that will not be based on true facts and naturally the profit calculated from the cost records will not be true.

Thus, cost accounting can be used only by big concerns. For example, it has not evolved so far any tool for handling inflationary situation. Meaning and Scope of Cost Accountancy.

Advantages of Cost Accounting

Fixed and variable expenses mean different things to the accountant. Fixed expenses remain unchanged in total throughout the year. These expenses decrease as production increases. Variable expenses remain unchanged per unit. Variable costs increase as sales increase. Accountants segregate fixed and variable expenses with the high-low method.

Cost accounting is a process of finding out the cost of the products or goods. Cost account helps to understand the pricing value of the products or goods. Cost Accounting is a branch of accounting concerned with recording and analyzing the cost elements of the organization. All cost elements are recorded, summarized and presented in a better way for proper understanding by the internal users of the organization. Cost accounting serves the main purpose of ascertaining the cost of products.

This is done with the help of valuable data made available for the purpose of comparison. For example, if material spent upon a pair of shoes in comes to Rs and for a similar pair of shoes the amount is Rs in , the increase may be due to increase in prices of material or more wastage in the use of materials or inefficiency at the time of buying or unnecessarily high prices paid. In case of big contracts or jobs, quotations cannot be given unless the cost of completing the contracts can be found out. 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,. This helps in maintaining costs at the lowest point consistent with the most efficient operating conditions.

Assignment Point - Solution for Best Assignment Paper

The main task of cost accounting is to arrange records and identify suitable allocation of investment to determine the costs of the goods or services. Present suitable data to control and guide the management, this includes finding out the cost of every shipment, contract, process, service or unit job. It is also related to the cost of selling, production, and distribution. It is the process of assembling and evaluating information to discover how an organization can maximize its earning and utilize funds.

Cost Accounting Method: Advantages and Disadvantages

The extent of advantages derived from the cost accounting is based on the type, adequacy and efficiency of cost accounting system installation. Cost Accounting System — Advantages and Disadvantages. Moreover, the management at the maximum should accept the advises given by the cost accounting system.

Cost benefit analysis is an objective examination of what you spend, relative to what you gain to achieve an outcome. The analysis can be laid out in dollars and cents; or, in terms of investment, in revenue and profit. Alternatively, it can evaluate intangibles such as social advantages and disadvantages. The strengths of a cost benefit analysis approach are closely tied to its weaknesses: it provides clarity, but sometimes does so in situations that aren't as clear cut as they seem. Performing a cost benefit analysis gives you the opportunity to delve into specifics about what you are spending to launch a product or to invest in an advertising campaign.

Five of the benefits that result from a business using a standard cost system are:. Improved cost control Companies can gain greater cost control by setting standards for each type of cost incurred and then highlighting exceptions or variances—instances where things did not go as planned. Variances provide a starting point for judging the effectiveness of managers in controlling the costs for which they are held responsible. Now the firm can investigate the cause of the excess of actual costs over standard costs and take action. Further investigation should reveal whether the exception or variance was caused by the inefficient use of materials or resulted from higher prices due to inflation or inefficient purchasing. In either case, the standard cost system acts as an early warning system by highlighting a potential hazard for management.


Besides the various advantages of cost accounting system, it suffers from certain limitations which are as follows: ADVERTISEMENTS: i) Expensive – Highly.


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Advantages and Disadvantages of Cost Accounting | with PDF

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4 Comments

  1. Ibar L. 08.05.2021 at 11:28

    Elimination of Wastes, Losses, and Inefficiencies – A good cost accounting system eliminates wastes, losses, and inefficiencies by fixing standards for everything.

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