What are the purposes of Cost Accounting?

1. Cost Ascertainment
The costs of producing different commodities or providing services must be ascertained accurately. These costs consist of material cost, labor cost and overheads. The costs must be kept at minimum possible level. The detailed information about costs helps the management to make some important decisions and to evaluate the performance of the organization.

2. Disclosure of Wastes
The costs incurred for the production of any commodity can be determined in advance in view of the past experience. If actual costs are higher than the expected or standard costs then} this excessive cost can be analyzed. This excessive cost may be due to wastage of raw material or idle labor time. Cost Accounting is an important aid to disclose wastes.

3. Decision Making
The management is responsible to make decision regarding what goods should be produced and in how much quantity. Cost accounting provides necessary information to the management for making the decisions.

4. Cost Control
Cost control is an important function of the management. Material cost, labor cost and overheads must be maintained, at desirable levels. Cost accounting principles are used to eliminate unnecessary costs.

5. Planning
The management prepares plans for the expansion of business activities. The installation of new machinery and plant is needed to increase the production capacity of a manufacturing concern in view of greater demand for its product. The past experience and cost data are used to prepare and implement future plans

6. Measurement of Efficiency
Cost data are used to measure the efficiency of an organization, if there are various departments of a business enterprise then it is important to determine the relative performance of .these departments. More efficient departments must be- given greater incentives and appropriate steps must be taken to improve the performance of less efficient departments.

7. Setting Selling Prices
It is difficult for a business concern to set selling prices of its products. Selling price of a product must be reasonable. If selling price is too high then due to competition from rivals, a firm's sale can be affected.

---

Wilfykil answered the question on April 15, 2019 at 08:49