Benefits of Cost Accounting
- Helps in price fixation.
- Helps in preparing estimate(s).
- Supports channelising production on the right lines.
- Assists in elimination of wastage.
- Makes comparison possible across periods and across product lines.
- Provides data for periodical profit and loss accounts.
- Helps in determining and enhancing efficiency.
- Helps in inventory control.
- Facilitates cost reduction.
- Assists in increasing productivity.
- Makes available systems of incentives, bonus plans, etc.
- Indirectly benefits through increase in consumer goods and directly through continuous employment and higher remuneration.
- Provides a base for judgement about the profitability and further prospects of the company.
For the economy
- Facilitates control of costs, elimination of wastages and inefficiencies, leading to the progress of the industry and consequently the nation.
Criticisms of Cost Accounting
It is expensive: Unless benefits accruing from cost accounting are more than the costs involved, it should be avoided.
Different results from Financial Records: The results shown by cost accounts generally differ from those shown by financial accounts for a variety of reasons and requires the preparation of reconciliation statements to verify their accuracy. This leads to increase in work load.
Lack of standard formats and systems: This makes it impossible to apply cost accounting uniformly to all industries. Therefore, the systems must be adapted to different industries based on their nature/ nature of the products manufactured or services rendered.
It is complex and leads to duplication of work (preparation of financial accounts as well as cost accounts).
It uses secondary data: Cost accounting largely depends on financial statements. Therefore, limitations and errors in financial information directly affect cost results.
Fundamentals of Cost Accounting, 3rd Edition, by Lanen, Anderson, and Maher
Principles of Cost Accounting, 15th Edition, by VanDerbeck