Cost Accounting Importance

Relevance and importance of cost accounting

Cost control

Cost control is a modus operandi utilized in minimizing cost of products and services without affecting its quality but instead, increasing its efficiency. There are various methods for controlling costs, namely, standard costing and budgetary control. Controlling cost is the rudiment of management accounting because it entails the juxtaposition of the actual results against the devised results. Costing provides management control in inventory levels, such as stock of materials, work-in-progress and finished goods. Costs can be retrenched in the long-run when alternatives would have been ventured. Besides, controlling costs also heighten efficiency levels. As it becomes possible to identify

In addition, costing can reduce losses due to the wastage of materials by reducing factory overhead costs. For instance, purchasing up-to-date machinery can sequentially minimize per unit cost and ultimately the overall total cost. Moreover, recruiting personnel accordingly based on job specifications is also another form of cost control in which it curtails damages and errors which in due course minimizes total cost. This in return, amplifies productivity and increases the profitability of the firm. Based on a case study done by Los Angeles Department of Water & Power (LADWP) via implementing capital program cost control, the company managed to substantially reduce the required labor for monthly data processing. Consequently, as costs were controlled and managed well, the company costs were greatly reduced, increasing its efficiency. Thus, it is crystal clear that cost accounting is

Conventionally, the price of a product is ascertained by virtue of the economic law of supply and demand and activities of competitors. However, cost occurred to the producer also plays a preeminent role in price fixing. There are various techniques under cost accounting in fixing the selling price. For instance, job costing, batch costing, output costing services and etc. Costs are amassed, classified and reviewed to deduce cost per unit. The selling price per unit is computed by incorporating a specific amount of profit on the cost per units aforementioned. According to a case study done by Amul Ice-Cream Company in India regarding cost accounting, the company establishes the importance of preparing a cost sheet. As the cost sheet is prepared, the firm compares its position with that of its competitors. Based on the analysis made, the company will earn the profit of Rs. 1,851,250 at the cost of Rs. 7,405,000 which is a good profit to be considered. Therefore, the firm fixes its selling price to Rs. 9,256,250 which is 20% at the cost (Amul, 2016). Apart from the selling price, costing also aids in reckoning estimates of an item. Tenders and estimates can be prepared based on reliable and sufficient costing records of a company. Similar to determining the selling price, costs are accumulated, categorized and analyzed to quantify the total cost and eventually derive a budgeted cost for a particular item. The