Question

1. List 5 ways that managerial accountants use cost information from cost systems in making decisions:

Answer 1

Managers use the information from costing system for making decisions in various ways which are described below:

I) the information which they get from costing system tells whether the operations are going well or not and organization is able to make profit or not on the cost incurred. If not, the information will automatically reveal that the cost is going high and measures needed to be taken.

2) The information obtained is used for taking decisions of cutting the cost which is incurred to the company so as to increase the profit to be earned by the company. Like if management found that operations process regarding a product is costing much higher than its price that would be earned from selling, which means it will cause loss to the company, then management will try ways to cut the cost down so as to reduce costing.

3) The information which they get help in matching their figures that determine that whether the set or made targets for the year to be achieved are actully achieved or not. If the targets are not met then accordingly measures are taken to improve and help achieve the target.

4) the informations also help in making future plans and taking decisions for what should be a proper plan in order to meet the targets and make more and more profit. The steps management thinks is not appropriate that had led to losses in previous year should be improved and implied. All these help to take better future decisions.

5) the information got from this costing system helps in reporting to the higher management about the financial year costing report. The previous informations also help in deciding and making analysis by higher management on what should be done to increase the profit of the organization.

These are the ways in which the managerial accountants use the information from cost system in making decisions.