Given below are the main benefits of a good cost accounting system:
1) Classification and Subdivision of Costs:
Contrary to a particular profit or loss outline complete by general accounting, the cost accounting classifies costs and income by each conceivable part of the business venture. This complete cost information for managerial control is one of the very important contributions of cost accounting.
2) Adequacy or Inadequacy of Selling Prices:
Unit cost of production, administration and in protected hands made possible by cost accounting supports management in deciding the adequacy or inadequacy of selling costs i.e. neither too high detracting business, nor too low ensuing in losses to the concern.
3) Disclosure of profitable Products:
Cost Accounting will disclose departments, activities, products and territories, which carry profit and those that consequence in losses. Management to conclude what products due to profit margin the sales department due to their greater profit margin should emphasize will use this information. What products arte unbeneficial or less profitable and might be eradicated or lesser sales pressure be given to them.
4) Control of Material and Supplies:
In a good costing system materials and supplies must be accounted for in terms of departments, jobs, units of production or service. This will eradicate altogether or reduce to the minimum misappropriations, deterioration, obsolescence, embezzlements and losses from defective, scrap, spoiled and out of date materials and supplies.
5) Maintenance of appropriate Investment in Inventories:
A costing system will help in the maintenance of various inventory items of materials and supplies in line with production and sale requirements. If these quantities are too undersized, production may stop or sales may be lost. On the other hand, if quantities of such materials and supplies are beyond the production and sales requirements, too much working capital may without cause tie up in inventories.
6) Correct Valuation of Inventories:
Cost Accounting takes part in the correct valuation of inventories of finished goods, effort in process, materials and supplies.
7) Whether to Manufacture or Purchase from Outsiders:
Cost evidences furnish information concerning the cost of manufacturing of different ended parts, which assist management in making a result whether to purchase these parts from exterior manufacturers or manufacture them in the factory.
8) Control of Labour Cost:
Orders, jobs, contracts, processes, departments, or services record cost of labour. In many developing enterprises, daily time reports are prepared showing innumerable hours and minutes spent and the wage rate for each worker for each job or operation.
9) Use of Company-wide Wage Incentive Plans:
When labour cost is accounted for by jobs and operations, it is probable to use efficiently wage incentive plans or bonus schemes for the payment of labour force. Cautiously planned and administered incentive schemes are an effectual means of enforcing superior presentation and cost reduction.
10) Controllable and Uncontrollable Cost:
Cost accounting exhibits at each phase of production and sale the controllable and unmanageable items in the manufacturing, selling and administrative cost therefore enabling management to concentrate concentration on those costs, which can be abridged, eliminated.
11) Use of Standards for calculating Efficiency:
A complete cost accounting system, normally, has a well-developed plan of standards to calculate the efficiency of the organization in the use of materials, incurrence of labour and further manufacturing cost.
12) Decrement of Losses Due to Seasonal Conditions:
Cost accounting gives data for making an absolute analysis of losses due to idle plant and equipment or because of the use of plant and equipment beyond normal capacity, irregular employment of labour, wastes in the use of materials.
In a good cost accounting system, preparation of various budgets periods in advance of actual production and sale of goods is necessary. These budgets include budgeted statement of profits, budgeted cost of plant improvements, budgeted cost of production, budgeted cash receipts and payments, and so forth. These budgets show the plans of the management for future periods and they reflect the expected results of these plans.
14) Reliable Check on General Accounting:
Finally, a well-organized and proper system of cost accounting is a most reliable and independent make sure on the accuracy of the financial accounts.