Question

Managerial accounting focuses a lot on costs: categorizing costs, controlling costs, reducing costs, etc. Why are costs so important? How does the cost-focus support the decisions that managers make?

Answer 1

mangerial accounting is purely internal accounting . every firm exists for the profit. revenue and cost management is essential for the maximisation of profit and its sustainability . to a large extent, profit depends on  how far the management categorise control and reduce cost . cost are classified on the basis of behaviour , traceability ,external reporting and decision making . for example, cost are classified into direct costs and indirect costs  on the basis of traceability. this helps in indetifying the costs attached with the units or jobs produced . identification of costs is essential for the determination of accurate price of the product or service .Inaccurate costing will have effects on the bottom line of the business.

controlling and reducing costs are the other important functions of mangerial accounting . cost control means reducing the cost of production . cost reduction refers to the continuous effort of reducing the cost per unit of the product . obviuously cost control aim at reducing expenses . by limiting the amount of money at different levels cost control decrease the cash going out of the business. it ensures the operational effeiciency of the businesss by cutting down the activities that consume large amount of resources. cost saved can be utilised for various other purposes like expansion and diversification of the firm .

cost reduction is a long term solution  to reduce the cost per unit of the product . every decision in the product development effect the cost .cost reduction targets at reducing the cost without compromising the quality of the product . by implementing various techniques like standard costing , budgetary control ,cost benefit analysis management can reduce the cost and increase the profit . since it is long term , management can resort to various strategies like process modifications, changing the sources , replacing with energy saving equipments, revising  the recruitment processes.

decision making is an important and critical  task for managers .when there are only one alternative ,decison making is an easy task . but in reality, since alternatives are plenty , decision making is critical . managers can make effective decisions when accurate and timely data are available . good decisions are made when it achieves optimum utilisation of resources . with the available resources business should be able tol achieve maximum . in other words, least cost and maximum revenue.management uses various tools for decision making . flexible budget,variance analysis, EOQ models are some of them . To implement any of these tools cost is an essential information . for flexible budget ,variable cost data are required .if the management is adopting variance analysis standard costs are required .in the case of EOQ models ,puchasing cost and carrying are must .Another important aid in decion making is the incremental analysis . this requires opportunity cost to be determined .,

in every firm , cost is the nucleus upon which priofitability , efficiency and sustainability of the firm depend  .without focusing on cost ,objectives and goals cannot be achieved .