3 Roles in Cost Accounting

9) “Cost Accounting is known to play its biggest role in aiding the management performing the tasks of Planning, Controlling and Decision Making”.
Planning – A successful business will first prepares for the future by carefully setting financial and non-financial goals with the planning function. We need to know the prime cost, production cost and total cost from the cost accounting statement before we start the business operations. From the cost accounting statement, we also need to know the cost for one unit from the profit.
Control – the comparison of actual results to the planned performance and the correction of any significant differences, whenever possible. Normally, in a business we need to make sure there is no wastage of prime costs, so that the purchases price of prime costs doesn’t increases. For an example, in manufacturing of shoes company, the direct materials used in producing the shoes need to avoid wastage so that the purchases price of prime costs doesn’t increases. If there is wastage happens, the company need to purchase another material from other companies and this would cause an increase in purchases price of prime costs. Besides avoiding wastage, we need to control the price, so that the total costs of a unit doesn’t increases.
Decision making – costing system provides detailed information as to the sources of costs, their behaviour composition and nature. The company can decide whether to stop manufacturing the product or to start manufacture new product.
Importance of cost accounting method is to:
• Provide managers with information of decision making and planning.
• Assisting managers in directing and controlled operations.
• Motivate managers towards the organization’s goals. [continues]

Read full essay