Uses of Cost Accounting Data

The information produced by a cost accounting system provides a basis for determining product cost
and aids management in planning and controlling operations.

a. Determining Product Costs

Cost accounting procedures help management in gathering the data needed to determine product
costs and thus generate meaningful financial statements and other reports. Cost procedures must
be designed to permit the computation of unit costs as well as total product costs. Unit cost
information is also useful in making a variety of important marketing decisions.

1. Determining the selling price of a product.

2. Meeting competition.

3. Bidding on contracts.

4. Analyzing profitability.

b. Planning and Control

One of the most important functions of cost accounting is the development of information which
can be used by management in planning and controlling operations.

Planning is the process of establishing objectives or goals for the firm and determining the means by
which the firm will attain them. Planning is essential to good management because it provides a
means of coordinating all of the operations of firm.

Planning can be divided into three (3) components:

a. Strategic planning — concerned with setting long range goals and objectives to determine the
overall direction of the company.

b. Tactical planning — concerned with plans for a shorter range (or tine period) and emphasizes
plans to achieve the strategic goals.

c. Operations planning — relates to the day-to-day implementation of tactical plans. It emphasizes

the coordination of the major factors of production (materials, labor, and facilities).

Control is the process of monitoring the company’s operations and determining whether the
objectives identified in the planning process are being accomplished.