January 26, 2022

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Cost accounting functions you should know

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The major objective of cost accounting is to ascertain the cost of producing goods per unit or the cost per service. Moreover, cost accounting has lots of functions for an organization. A good costing system will help a firm makes efficient pricing decision, plan for the future among other things. Here are some functions of cost accounting you should know.

Cost accounting functions you should know

Functions of costing

It helps in pricing decision: The decision for the price of a product or service can be determined from a business costing information. From such available information, the cost accountant can easily compute the price for products or services.

It is used for Planning and Budgeting: These two terms go together. There is no planning without budgeting. Unless if it is a freewheel planning process. The information of a firm’s cost accounting information can be used to make adequate planning for the short and medium-term.

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It is used for another decision making: A business strength or weakness can be ascertained from costing. A firm can know whether to make or buy a product; or if it has the excess capacity it can be used to generate more income. Thereby, make a sound decision.

Cost Control: The information provided by firms costing can be used for control purposes. From such information, actual results can be compared with standards or budget and variances can be used to make corrective decisions.

Helps management to be efficient: Costing data helps management to be efficient. Managers can use such information to minimize cost and maximize profit.

Used for Inventory Management: Trading and manufacturing businesses are also on high alert when it comes to inventory. This is so, as inventory is what leads to revenue and profits. It is through, the costing information system inventory can be managed effectively.

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Next, the advantages and disadvantages of costing will be highlighted.

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