Question

What are some examples of how cost accounting information is used for decision making and performance evaluation in organizations?

Answer 1

Cost Accounting Information is used in both Short Term and Long Term Decision Making

Knowledge of the Costing of a product, a service et al can lead to proper performance evaluation.

A few instances of usage in decision making are:

a. Deciding on whether to make or buy a component: Variable Costs and Marginal Costing application can lead to such decision.

b. Whether to carry on production or to shut down a plant temporarily: This also happens through Marginal Costing Techniques

c. When can the product achieve and surpass the no-profit-no-loss situation: Break Even Point Analysis lets know the point at which such situation can be surpassed.

d. Whether the material mix taken to produce a product is same as was decided when the product standard costs were decided: Variance Analysis leads to such evaluation.

Similarly Benchmarking and Balanced Scorecard are used to evaluate performance. Benchmarking can lead to evaluation in comparison with Industry Standards and Competitors. Knowledge of Competitors Costing and other information can improve own performance. The practices of an organization are compared to competitors'.

Balanced Scorecard can lead to performance evaluation from financial perspective, customer perspective, internal efficiency perspective and learning perspective.

The different Performance measures under the perspectives leads to an overall evaluation of an organisation.