How to use cost accounting information for products that are currently in production?

Expert Solution

Ans: Cost accounting information for products that are currently in production can be used in various ways:

Determination of costing of products- Cost accounting information of products that are currently in production line helps in determination of exact costs incurred on production of products. This helps businesses to determine the bifurcation of variable and fixed costs element in product costing. Thus helping business to determine the exact costing of products. As cost data of product is of current production period, cost calculated of product will be more accurate.

Perform activity based costing- Cost accounting information will also help to perform activity based costing (ABC costing) of product. This will give organization costs of various products more accurately i.e., when there are common costs for various products produced on same production line, then ABC costing helps in more accurate allocation of costs based on activity drivers to each products. Thus cost accounting information helps in determination of exact costs of various products.

Variance analysis- Cost accounting information of products helps in performance of variance analysis. Budgets are prepared in advance for costing to be incurred on various products during the upcoming production period. This helps businesses to compare actual production data with budgeted production data and then find reasons for variance in both the data. This brings variance analysis into play. Reason for performance of variance analysis is to determine the unnecessary production costs incurred in product that should be controlled to bring down the production costs of products.

Determination of selling price of products- Cost accounting information for products that are currently in production helps in determination of costing of products, which in turn helps in deciding selling price of product. Based on current production data, business can accurately determine the selling price of products. It will also help business to compare there product quality and costs with that of competitors to more accurately formulate pricing strategy of products to survive in competitive scenario.

ekkarill92 answered 2 years ago

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