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Uses of cost accounting

Updated on March 11, 2009

The main uses of cost accounting as follows:

1. Helps in Ascertainment of Cost: Cost Accounting helps in the ascertainment of cost of each product, process, job, contract, activity etc. by using different methods of costing such as Job Costing and Process Costing.

2. Helps in Control of Cost: It helps in the control of material costs, labour costs and overheads by using different techniques of control such as Standard Costing and Budgetary Control.

3. Helps in Decision making: It helps the management in making various decisions such as –

(a) Whether to make or buy a component

(b) Whether to retain or replace an existing machine

(c) Whether to process further or not

(d) Whether to shut down or continue operations

(e) Whether to accept orders below cost or not

(f) Whether to expand or not

(g) How much reduction in the selling price should be made in case of depression?

4. Helps in fixing Selling Prices: It helps the management in fixing selling prices of products or services by providing detailed cost information.

5. Helps in Inventory Control: It helps in inventory by using various techniques such as ABC analysis, Economic Order Quantity, Stock levels, Perpetual Inventory system and Continuous Stock Taking, Inventory Turnover Ratio etc.

6. Helps in Cost reduction: It helps in the introduction of cost reduction programme and finding out new and improved method to reduce costs.

7. Helps in measurements of Efficiency: It helps in measurements of efficiency of operations through establishment of standards and variance analysis.

8. Helps in preparation of Budgets: It helps in the preparation of various budgets such as Sales Budget, Production Budget, Purchase Budget, Man-Power Budget, Overheads budget.

9. Helps in identifying Unprofitable Activities: It helps in identifying unprofitable activities so that the necessary correction action may be taken.

10. Helps in identifying Material Losses: It helps in identifying material losses such as wastage, scrap, spoilage and defective through report on material losses so that the necessary corrective action may be taken.

11. Helps in identifying Idle Time and Labour Turnover: It helps in identifying idle time and labour turnover through the report on idle time and labour turnover so that the necessary corrective action may be taken.

12. Helps in identifying Idle Capacity: It helps in identifying idle capacity so that the necessary corrective action may be taken.

13. Helps in improving Productivity: It helps in improving productivity of materials and labour.

14. Helps in Cost Comparison: It helps in Cost Comparisons such as –

(a) Comparison with Standard Figures: Comparison of actual figures with standard of budgeted figures for the same period and the same firm;

(b) Intra-firm Comparison: Comparison of actual figures of one period with those of another period for the same firm;

(c) Inter-firm Comparison: Comparison of actual figures of one firm with those of another standard firm belonging to the same industry; and

(d) Pattern Comparison: Comparison of actual figures of one firm with those of industry to which the firm belongs.

15. Helps in checking the accuracy of financial accounts: It helps in checking the accuracy of financial accounts with the help of reconciliation statement prepared to reconcile the profit as per cost accounts with the profit as per financial accounts.

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      S.A.Wasif 7 years ago

      Excellent detail about the usage of cost accounting in the business world.It will helps a lot the learners of cost accounting.

      Thanks to who submitted it.

      S.A.Wasif

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      accounting student 7 years ago

      I agree with S.A. Wasif; the article provides excellent detail.

      Accounting Student

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      Timothy C. Ugwu 6 years ago

      I wish to say a big thank you to the presenter of the article "uses of cost accounting". Its detailed and concise and has been found usefull by many especially account students.

      Many thanks as you do more!!

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      Peter 5 years ago

      Wow am very pleased with these work.keep it up

    • profile image

      Enock zachary 5 years ago

      Wordeful support,thanks for your findings

    • profile image

      Umar 5 years ago

      Its realy amaizing and informative article, keep it up man

    • profile image

      Briggs 5 years ago

      I want to know the uses of cost accounting in control

    • profile image

      nwizichidecency 5 years ago

      This article has help me so much 2 write my term papper

    • profile image

      Prekky 5 years ago

      Your findings re very helpful thanks a lot & plz keep it up

    • profile image

      stella 5 years ago

      wonderful work. pls keep it up.pls can u do more on the uses of cost accounting in the banking sector? thanks.

    • profile image

      Diana 5 years ago

      Wonderful, Actually this is a grade help for my education. Thakz

    • profile image

      dono 5 years ago

      Good one..keep it up

    • profile image

      Ali 4 years ago

      need uses of cost data

    • profile image

      shahid manzoor 4 years ago

      waooo that's v.good and helpful cry on it,,,

      thanx 4 providing it...

    • profile image

      Ahmad Afridi 3 years ago

      Thank you for providing such a good Article. Itz very helpful

    • profile image

      kachope john amooti. 3 years ago

      Thanks for such good work

    • profile image

      Diana 3 years ago

      Wonderful article it is

    • profile image

      denis 2 years ago

      good

    • profile image

      Ewharieme Prince 2 years ago

      Thanks so much for this article, it has really helped me a lot.

    • profile image

      junaidu muhammad Dan Bk 2 years ago

      thanks for this but where is your differences

    • profile image

      mohamed bysath 21 months ago

      Its very usefull Thank you!!

    • profile image

      edward 20 months ago

      thanks for the explanations and continue on the same way in the future things/new ideas related to cost

    • profile image

      naiy 16 months ago

      good

    • profile image

      napoleon 16 months ago

      thanks so much for this

    • profile image

      Abeid 16 months ago

      Thank you

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