Moreover, the management has to adopt policies to face the ever growing competition, to develop new markets for its products. These changes have considerable effect on costs. (d) Cost Accounting and expansion policy:Įvery business unit has to face national and international changes that occur frequently due to changes in governments’ political and economic policies. The use of budgetary control combined with cost accounting may go a long way to bring about stability in industrial activity which will ultimately benefit the shareholders, employers and the society at large.
The cost reports can exhibit the idle time of workers and machinery, cost of storing raw materials and finished products, unabsorbed overhead costs and general decay in the morale of personnel that result from subnormal operations. The cost accountant may make an attempt to alleviate the situation by presenting figures showing costs and losses that result from irregular employment of labour, plant and machinery. In many industries higher costs and lower profits arise due to seasonal changes in activities. (c) Curtailment of losses due to seasonal conditions:
This classification allows the cost accountant to concentrate his attention on those costs which can be reduced or eliminated. Overheads are further classified as controllable and uncontrollable items. In cost accounting, costs are classified into direct and indirect items, indirect costs are generally termed as overheads. In many manufacturing concerns, daily summary reports are prepared to show the number of hours and wage rate for each worker, per job or operation. Labour cost is controlled through proper accounting for labour by jobs and by operations. Control of raw materials and of parts follows production until goods are completed. The perpetual inventory method is used to control properly the materials in stores. A rational and scientific system of receiving, handling and issuing materials is strictly observed. In every type of cost accounting, materials and supplies are accounted for-in terms of departments and processes. (b) It helps management in controlling cost. This facilitates comparison of costs of one period with those relating to a different period in order to evaluate the operating efficiency of each division or segment or product. (a) Cost Accounting helps in determination and analysis of costs and income of a business unit. In doing so, cost accounting performs the following tasks: (v) To coordinate the entire organisational efforts and tasks. (iv) Making decisions about improvements and adjustments in the operation of the business for achieving predetermined business objectives and
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