Top 10 Advantages of Cost Accounting [With PDF]

In the field of accounting, the advantages of cost accounting are enormous. It is a primary method for management to assess the product’s cost and price, cost control, inventory control, etc.

Financial accounting has some limitations. It doesn’t provide the necessary cost data properly. The drawback of financial accounting has made the management aware that cost accounting is so important.

What are the top 10 Advantages of Cost Accounting?

The top 10 advantages of cost accounting are as follows:

1. Helps in Cost Reduction:

Every business organization wants to reduce costs. Cost accounting helps in cost reduction in business.

It applies various cost reduction programs and improved methods to reduce business costs in the long run.

2. Ascertainment of Cost:

Ascertainment of cost is an essential task of the accountant. Cost accounting helps the management ascertain the cost of the process, product, job, contact, activity, service, etc., by using various techniques.

3. Identifying Non-profitable Activities:

With the aid of cost accounting, management can easily recognize the unprofitable activities of the company.

Cost accounting information helps the business to take the appropriate corrective action against these unprofitable activities.

4. Fixation of Price:

Price is susceptible for any business. Any company’s success depends on proper price determination.

Cost accounting helps the management in setting selling prices of a commodity by providing detailed cost information.

 5. Inventory Controls:

Cost accounting is an efficient and appropriate valuation technique that helps a company more efficiently and correctly evaluate inventory.

By using the perpetual inventory method, ABC analysis, economic order quantity in terms of material stock, work in progress, and finished goods, cost accounting helps control costs.

6. Elimination of Wastage:

Cost accounting helps to consider the cost of the product at every stage. As a result, the business can review all types of waste, such as time and expenses, etc., at every production stage.

It helps management to minimize waste and ensure proper use of everything.

7. Benefits of the National Economy:

The efficient costing method supports the national economy by raising government revenue by achieving higher production.

The overall economic growth of a nation is attributed to the quality of output.

8. Fixation of Responsibility:

Fixation of responsibility is one of the significant tasks of management.

Cost accounting helps determine the businesses appropriate cost centers and responsibility centers that assign correct responsibility to the centers.

9. Helps to Verify the Accuracy of the Financial Account:

Cost accounting helps verify the financial account’s consistency by reconciling the profit as per the financial reports with the profit as per the cost account.

10. Relative Productivity of Employees:

The success of every company depends on the productivity of the various employees. Productive employees are the organization’s value.

With the assistance of cost accounting, a business can introduce an acceptable plan for salaries, bonuses, and benefits for an enterprise’s staff and employees.

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