Advantages of Cost Accounting from Various Angles

          In the earlier article we had discussed about cost accounting, Objectives of Cost Accounting and Scope of Cost Accounting and later we also discussed regarding the differences between cost accounting and financial accounting. So today let me tell you the advantages of the cost accounting.

Advantages of Cost Accounting

          The advantages of the cost accounting can be divided into following categories below.

§  Advantages to Management

§  Advantages to Laborers

§  Advantages to Society

§  Advantages to Government

§  Advantages to Creditors

Now let us try to understand each of the advantage in detail one by one.

§  Advantages To Management:

The benefits or advantages of cost accounting to management are

·        Resource Management:

The cost data such as cost description, cost price is really helpful for the management in managing the resources efficiently and use them effectively. This helps the management in cost management as it helps the management to track the cost of the production for various goods and services produced by firm.

·        Price Fixation:

The cost accounting data helps management to fix the right price by using proper cost plus profit margin. As a result of this company can remain competent in the market by proper pricing.

·        Elimination of Waste:

The cost data helps the management to identify the idle resources like material and labor which usually results in the wastage of the resources and increases the cost of the production. By using this data and cost analysis management can reduce the cost and idle resources which will help firm to reduce the cost and increase the profit of the firm indirectly.

·        Labor Control:

Human Resource is one of the most important resources of any firm. The human resource of the firm or company if not taken care properly then will cost huge to the company as a result company cannot loss its labors. The cost data here tell how much the firm or company is spending excessive or making unnecessary expenditure with respect to its labor and human resource as a result of this the unnecessary expenditure can be stopped and cost can be reduced and profit is increased.

·        Control over the other overheads:

The cost accounting is very helpful in tracking the expenditure occurred in the office and during marketing activities and also provides insights into it which can be used by management to cut the unnecessary expenditure towards the administrative expenses and marketing activities.

·        Decision Making:

The cost data helps the management to know the cost incurred in the production cycle and other expenses. This helps the management to make decision regarding the volume of the production so that the cost can be managed effectively and efficiently. And also the management can make decision based on facts and figure.

§  Advantages to Laborers

The benefits or advantages of the cost accounting to laborers are as follows,

·        Wage Policy:

The wage of the labor is decided on the basis of the cost structure and market demand of the labor. If there is high demand for the labor in the market then the labors can demand high wages for themselves or vice versa will be the situation.

·        Labor Efficiency:

The cost accounting helps in recognizing the efficiency of the labor and lets the management to reward the efficient labors by paying them extra wages in the form of incentives. This will motivate the rest of the labor force to work efficiently and indirectly helps company or firm attain the optimal cost of production.

·        Incentive Wage System:

The cost accounting helps the cost expert to discover and plan various incentive wage system such as Hasley plan, Rowan’s plans.

§  Advantages to Society

The benefits or advantages of the cost accounting to society are as follows,

·        Price Reduction:

The cost accounting will help the society by lowering the price of the products. The prices come down because if the cost of the production comes down you cost reduction and proper pricing policy then automatically the prices of the products will fall. The lower prices are really helpful for the general public and society.

·        Supply of Goods:

The cost accounting helps to maximize the earnings of the firm or company by optimal usage of the material and the resources as a result of this the demand and supply of the goods will be maintained properly. So that the society functions smoothly.

·        Standard of Living:

As I have discuss above cost accounting helps to maintain proper price and supply of the goods this will helps the society to indirectly influencing the living standard of the people and quality of the goods of production.

§  Advantages to Government

The benefits or advantages of the cost accounting to government are as follows,

·        Tax Liability:

The cost accounting helps management to assess the exercise duty, income tax and other taxes. Thus helps government to frame proper fiscal policies for the upcoming years.

·        Policy Making:

The cost accounting techniques and procedures of the cost accounting and cost data helps the government in preparation of the national economic development plans. This will help the nation and government to develop faster and handle the financial condition in the better way.

·        Measurement of Performance:

Cost Accounting helps government to know or assess the efficiency of the publicly held companies by measuring the performance of the companies or firm so that the government can take the required steps to improve the publicly held companies.

§  Advantages to Creditors

The benefits or advantages of the cost accounting to creditors are as follows,

·        Ascertaining the Solvency:

The cost accounting helps the creditors to assess the solvency of the firm or company. This helps the creditors to frame a proper credit policy to the company or firm based on the solvency of the firm.

·        Ascertaining the Profitability:

The cost data and cost records help the creditors to assess the profitability of the firm and the future prospectus of the company.

                   From the above mentioned benefits of the cost accounting we can conclude that cost accounting is one of the most important areas for a firm from various angles and prospects. I hope after reading the article you have understood the importance and advantages of the cost accounting from various angles and prospects.