Question

It has been argued that “Cost and management accounting systems have a manifold of advantages”. Required: outline these advantages with respect to work organizations.

Answer 1

Cost accounting helps firms in estimating cost of their products or services ,so that efficiency of operations as well as profitability can be achieved.

Efficiency of operations is achieved through measurement & recording of costs & monitoring them with a view to control and minimise .

Attributing correct and accurate costs to products & services is the main aim of a cost accounting system--- as this forms the basis of fixing the selling price for that product/service.

Management accounting system combines data from financial & cost accounting systems,

evaluates performance,

establishes the variances of each & every major head of expense/income ,

study the reasons for both positive & negative variances

initiate appropriate measures to rectify the negative ones & to sustain the positive ones,

monitor the further performance so as to improve & improvise on performance --in all areas ,both financial & non-financial.

The above empowers the management to identify non-performing areas and make corrective actions at the earliest.

Unlike financial accounting that concentrates mainly on recording and compliance , management accounting deals with construction of various analytical reports -out of the facts and figures provided by the financial & cost data .

These reports aid the management in making policy decisions on the right lines.

Under this system,trends are established from past records to forecast the future figures , given the resources & constraints facing the management -- so that they can plan the most advantageous timing of any major expenditures , their feasibility or otherwise, so that value to sharehloders is maximised.

Thus both cost & management accounting ,basically complementary to the more essential financial accounting ,have manifold advantages to any organistion, that wish to improve on performance and deliver the best to all their stake holders .

Whatever the type of organisation,be it profit or not-for-profit, adoption & maintenance of a good cost and management accounting system , will help to achieve their objective , in toto & in perfection, for sure.