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Cost Accounting

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Cost Accounting

It is imperative for business concerns engaged in the provision of various services and production of goods to continuously strive to reduce cost and enhance the quality of their goods or services so that the discerning customers can receive better intrinsic value for money. Since competition, either domestic or global, provides customers with a much wider choice than under conditions of monopoly/semi-monopoly, only those entities which enhance customer satisfaction and afford better value to customers can hope to hold on to or increase their market share.

The emphasis of industry in general has very rightly turned to reduction in costs while improving internal efficiencies and product quality. This focus has become essential in today’s globally competitive business environment, and particularly in the context of emerging economies, where greater market access is a direct effect of the cost factor. Real cost reduction holds the key to transforming indigenous industry into a global supply hub for its industrial products and services.

The industry should adopt strategies to effectively indulge in cost reduction while at the same time maintaining the level of excellence in the production and services. There has been a mis-conception for quite sometime that quality and cost inversely related. The industry will have to practice to optimize the quality for a given cost or minimize the cost for a given quality. This trade-off itself will have to be sensitized from situation to situation. Strategic cost management has gained utmost importance in view of spiraling costs of inputs that go into manufacturing.

This burden of rising costs coupled with the effect of reducing selling prices due to better technology, cut-throat competition etc. are squeezing sales volumes and/or profit margins. In the current scenario it becomes difficult in the industry to sustain and survive unless the costs are correctly accounted for, controlled and reduced so as to sustain and remain in the industry. In time of trade depression, the costing information will help the management to know the areas where economies may be sought, wastages to be eliminated and efficiency to be increased.

The cost accounting facilitates distinction of costs into fixed costs and variable costs, which can be used to determine the prices in periods of trade depression, by selling the product even at price below the total cost. In period of severe competition, the costing information provides sufficient ground in location of inefficiencies, wastages etc. to exercise cost control and cost reduction programmes.

This will help in reduction of selling prices to meet trade competition. Simultaneously it helps in survival and growth of the concern even in situation of unfavorable economic conditions.