Advantages and Disadvantages of Cost Accounting Advantages of Cost Accounting The extent of advantages derived from the cost accounting is based on the type, adequacy and efficiency of cost accounting system installation.
Cost accounting Importance and advantages of cost accounting Concepts of cost accounting Cost accounting is a branch of accounting that has evolved to overcome the limitations of financial accounting. It is the process of accounting for cost, which is concerned more with the ascertainment, allocation, distribution and accounting aspects of cost.
It is that branch of accounting, which deals with the classification, recording, allocation, summation and reporting of current and prospective costs.
Actually, it is the formal mechanism by means of which of products and services are ascertained and controlled. It is an internal reporting systems that aims to assist the management for planning and decision-making it primary emphasizes on cost and deals with collection, analysis, interpretation and prospective for managerial decision making on various business problems.
Cost accounting is more concerned with short-tem planning Advantages of cost accounting its reporting period is much losses that financial accounting.
It deals with historic data but is also futuristic in approach.
The advantages of cost accounting are: Disclosure of profitable and unprofitable activities. Since cost accounting minutely calculates the cost, selling price and profitability of product, segregation of profitable or unprofitable items or activities becomes easy. Contrasted with general accounting or financial accounting, the cost accounting method is an internally focused, firm-specific system used to estimate cost control, inventory and profitability. 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 .
Cost accounting systems cannot be installed without proper financial accounting systems. Each organization can develop a costing systems best suited to its individual needs. In financial accounting the major emphasis is in cost classification based on types of transaction e.
Objective and function of cost accounting The main objective and function of cost accounting are mentioned below: The expenses that are incurred while producing goods or rendering services are called costs.
Some examples of costs are material, labor and other direct and indirect expenses.
Under cost accounting, cost are collected, classified and analyzed with the aim of finding out the total as well as per unit cost of goods, services, processes, contract etc.
To analyses cost and loss: The analysis of cost is necessary to classify the cost into controllable or uncontrollable, relevant or irreverent, profitable or unprofitable etc.
Cost accounting aims at controlling the cost by using various techniques, such as standard costing and budgetary control.
To help in fixation of selling price: The costs are accumulated, classified and analyzed to ascertain cost per unit. The selling price per unit is calculated by adding a certain profit on the cost per units.
Under cost accounting, different techniques such as job costing, batch costing, output costing services costing etc are used for determine the selling price. To aid the management: Importance and advantages of cost accounting The importance and advance of cost accounting are presented below: Helps in controlling cost: Provides necessary cost information: Ascertains the total per unit cost of production: Introduces cost reduction programs: Discloses the profitable and non profitable activities: Provides information for the comparison of cost: Checks the accuracy of financial accounts: This is done by preparing cost reconciliation statement.
Helps invests and financial institutions: Differences between financial and cost accounting Limitations of cost accounting Besides a number of advantages, cost accounting sufferers from a number of limitations.
Some of them are mentioned below: It is possible that two equally competent cost accountants may arrive at different results from the same information.
Keeping this limitation in view, all cost accounting results can be as mere estimates.
In which a contacts, the reliable of cost accounting might be low. Thus it can be used only by big concerned. Ignorance of futuristic situation: Lack of double entry systems: According to the terminology of management and financial accountancy published by the chartered institute of management accounts CIMALondon, cost accounting means, "the application of costing and cost accounting principle of methods and techniques to the science of art and practices of cost control.
It include the prostration of information derived there form for the purpose of management decision-making. Cost accountancy is also an art because it involves costing technique and methods, such as those of different costing, and standard costing etc.Cost accounting is the process of collecting and interpreting information to determine how an organization earns and uses funds.
There are multiple advantages to using cost accounting, since it provides vastly more actionable information than the financial statements produced through financial ac. Cost accounting: cost accounting is the process of accounting for costs.
It embraces the accounting procedures relating to recording of all incomes and expenditures and the preparation of periodical statements and reports with the object of ascertaining and controlling costs.
The advantages of cost accounting are: Disclosure of profitable and unprofitable activities. Since cost accounting minutely calculates the cost, selling price and profitability of product, segregation of profitable or unprofitable items or activities becomes easy.
Contrasted with general accounting or financial accounting, the cost accounting method is an internally focused, firm-specific system used to estimate cost control, inventory and profitability.
Main advantages of cost accounting are given below: (i) Profitable and unprofitable activities are disclosed and steps can be taken to eliminate or reduce those activities from which little or no benefit is obtained or to change the method of production in order to make such activities more.
Main Advantages of Cost Accounting. Managers appreciate cost accounting because it can be adapted, tinkered with and implemented according to the changing needs of the business.
Unlike static, Financial Accounting Standards Board (FASB)-driven financial accounting, cost accounting need only concern itself with internal eyes and internal purposes.