Cost Accounting and Management

Cost accounting provides invaluable aid to management. It is so closely allied to management that it is difficult to indicate where the work of the cost accounting ends and managerial control begins. Adequate costing data help management in reaching certain important decisions such as, whether hand labour should be replaced by the machinery or not; whether a particular product line should be discounted or not etc.

Costing checks recklessness and avoids occurrence of mistakes. Cost can be reduced by proper organisation of the plant and executive personne. As an aid to management it also provides invaluable information to enable management, to maintain effective control over stores and inventory, to increase efficiency of the business and to check wastage and losses. It facilitates delegation of responsibility for importance tasks and rating of employees. However, for all this, it is necessary for the management to be capable of using in a proper way the information provided by the cost accounts. The various advantages derived by management on account of a good costing system can be put as follows:

1. Costing helps in periods of trade depression and trade competition: In periods of trade depression the business cannot afford to have leakage which passes unchecked. The management should know where economics may be sought, waste eliminated and efficiency increased. The business has to wage a war for its survival. The management should know the actual cost of their products before embarking or nay scheme of reducing prices or giving tenders. Adequate costing facilitates this.

2. Aids in price fixation: though economic law of supply and demand and activities of the competitors, to a great extent, determine the price of the article, cost to the producer does play and important part. The producer can take necessary guidance from his costing records.

3. Helps in estimate: Adequate costing records provides a reliable basis upon which tenders and estimates may be prepared. The chances of losing a contract on account of over-rating or the losing in the execution of a contract due to under-rating can be minimized.

4. Helps in channelizing production on right lines: Costing makes possible for the management to distinguish between profitable operation and non-profitable and activities. Profit can be maximized by concentrating on profitable operation and eliminating non-profitable ones.

5. Wastages are eliminated: As it possible to know the cost of the article at every stage, it becomes possible to check various forms of waste, such as time, expenses etc. or in the use of machine, equipment and tools.

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