IMPORTANCE OF COST ACCOUNTING

ANU ANNA JACOB

 What is cost accounting?

Process that aims to capture a company's costs of

production by assessing the input costs of each step of
production, as well as fixed costs such as depreciation of
capital equipment

First measure and record these costs individually

Compare input results to output or actual results to aid

company management in measuring financial
performance.
Importance of cost accounting

1.Classification and Subdivision of Costs:

 Cost accounting classifies cost and income by every
possible divisions

 Data regarding costs by

departments, processes, functions, products, orders, jo
bs, contracts and services can easily computed
2.Helps in determining selling price

 Since CA analyses the cost of each unit, it gives an idea

about the cost of production

 This awareness helps to decide adequate selling price

 High price and low price affects the company

 Helps in decision making during period of

depression, competition etc.
3.Disclosure of profitable products
CA analyses each and every units, so the most
profitable unit an d unit making loses can be easily
identified
So, decision regarding which all activities are to be
promoted, which all are to be modified or avoided can
be easily taken.
This will help to improve the overall performance and
profit.
4.Control of material and supplies
 In CA materials are allocated according in
terms of departments, jobs, unit of production
or service

 This helps to minimize misappropriation, loses

from defective,spoiled,scrap and out of date
material supplies
5.Control of labour cost
Cost accounting analyses the time spent by each
worker, wage rate of each worker per job etc
This enables to find the cost of labour, measure
efficiency or inefficiency of labour force etc.
It also helps to assign the best suited job for each
employee.
Thus cost of labour can be controlled
6.Idleness can be detected
 Cost accounting values each single unit

 So it is easy to detect the idleness which result in

wastage of time, money and other resources

 Proper steps can be adopted to avoid this loss

7.Reliable check on general
accounts
 Cost accounting facilitates us to check the reliability of
general accounts
 It identifies exact cost for the decrease/increase of
profit/loss
 Thus proper measures can be adopted
CONCLUSION
 The main objective of the cost accounting is to
pinpoint the efficiencies and inefficiencies, if any, in
the use of material, labour and machinery.
 Since cost accounting analyses each possible units it is
beneficial to management as well as the employees