Page 11 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting
Notes
6 LOVELY PROFESSIONAL UNIVERSITY
Self Assessment
State whether the following statements are true or false:
7. Financial accounts deal with all the items of expenses, losses, income and gains in total but
the cost accounts deal with items of cost alone.
8. Financial accounts cover a short period usually a week.
9. Cost accounting will generally present a better picture to the public who can not understand
the intricacies of the maintenance of accounting.
1.4 Role of Cost Accounting in Decision Making
The cost accounting plays an important role in the following decisions making:
1. Determination and Analysis of Cost: The main object of cost accountant is to determine
cost per unit or per job or per contract. Thereby the constituents such as prime cost and
overheads that may be fixed, variable, semi-variable can be disclosed, which in turn
evaluate the operating efficiency of each departments.
2. Cost Control and Cost Reduction: Cost control and cost reduction is an important factor
to be considered to know the best result obtained by each department. For this purpose,
the standards are fixed and in case the efficiency of each department is more than the
anticipated standard, the result will be considered as favourable and vice-versa.
3. Planning and Decision-making: This is possible when policies that are framed are properly
implemented. The technique of cost accounting which produces the best result depends
upon the best tools which are in operation by the management, stock holders, consumers
and government.
4. A good system of costing will be of varied benefits to the management:
(a) Profitable and unprofitable activities can be disclosed by taking necessary steps
periodically.
(b) Costing enables a concern to measure the efficiency maintained and prove it.
(c) Costing provides such information upon which estimates and tenders are based.
(d) Costing guides future production policies.
(e) An efficient check is provided on stores and materials.
(f) An efficient check on labour and machines is also possible by providing incentives to
workers.
(g) It helps increase profi ts.
(h) It enables a periodical determination of profits or losses without resort to stock
taking.
(i) It furnishes reliable data for comparing costs in different periods for different
volumes of output.
(j) The fixation of price cannot be properly done unless proper figures of costs are
available.
(k) The exact cause of increase or decrease in profit or loss can be detected.