Current cost accounting advantages and disadvantages. Advantages And Disadvantages Of Current Cost... 2022-10-27
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Cost accounting is a practice that involves the determination, measurement, and communication of the costs associated with producing goods or providing services. It is an important tool for businesses to understand the costs of their operations and to make informed decisions about pricing, budgeting, and resource allocation.
One of the main advantages of cost accounting is that it provides a clear understanding of the costs involved in the production of goods or services. By accurately tracking and measuring the costs of materials, labor, and overhead, businesses can identify areas of inefficiency and potential cost savings. This information can be used to make informed decisions about pricing, budgeting, and resource allocation, which can ultimately improve profitability.
Another advantage of cost accounting is that it can help businesses to better understand the profitability of different products or services. By analyzing the costs associated with each product or service, businesses can identify which ones are the most profitable and allocate resources accordingly. This can help businesses to maximize profits and minimize losses.
However, cost accounting also has some disadvantages. One potential disadvantage is that it can be time-consuming and resource-intensive to accurately track and measure the costs of all materials, labor, and overhead. This can be especially challenging for businesses that operate in complex or rapidly changing environments.
Another potential disadvantage is that cost accounting can be prone to errors and inaccuracies. This can occur if the cost data is not accurately tracked or if there are errors in the calculations. This can lead to incorrect decision-making and potentially negative financial consequences for the business.
Overall, cost accounting can be a powerful tool for businesses to understand the costs of their operations and make informed decisions about pricing, budgeting, and resource allocation. However, it is important for businesses to carefully consider the potential advantages and disadvantages of cost accounting and to implement appropriate controls to ensure accuracy and reliability.
Advantages and Disadvantages of Cost Accounting
Tax Accounting: This accounting deals with various tax obligations such as income tax, sales tax, customs duties, etc. It leads to over absorption or under absorption of 6. Advantages and Disadvantages of Cost Accounting Accounting is the process of categorizing, summarizing, and documenting transactions or occurrences that may be stated and comprehended in the form of money. How does Cost Method Work? This is achieved through the provision of footnotes. There are about ten types of accounting which are as follows: 1. Current Cost Accounting Over the years, there has been increased debate amongst practitioners and academicians on the most appropriate accounting method to adopt. To identify the variance, the real performance is contrasted with the benchmark.
It is important for businesses to be aware of these limitations and consider alternative approaches, such as activity-based costing or value-based pricing, to ensure accurate and informed decision-making. Examines the Causes of Losses Periods of profitability and loss are a reality for any business, but now, they must constantly assess or look into the causes of the losses sustained. Green Accounting: This branch of accounting takes the environmental costs into account for the calculation of the operating cost of the enterprise. Cost accounting uses a variety of methodologies, including job costing, standard costing, and process costing, to achieve this. When employee are paid a basic pay for a fixed on the job period.
Hence, it does not record fair fluctuation on the asset. Advantages of Accounting Mostly the uses of accounting incorporate its advantages, and there are no such differences in identification. Disadvantages of Cost Accounting β Cost accounting is not without drawbacks. Therefore, proponents of historical cost accounting assert that personal judgment plays a role in the determination of current value rather than the market forces which increases the degree of subjectivity. Additionally, financial information obtained from financial reports prepared using historical accounting can be misleading. They are not recorded at the fair value or the market value of the particular item.
Merits and demerits of this method are as follows. Criticism on Historical Cost Accounting Criticism on historical cost accounting 1. One criticism of this approach is that current costs rely on inflation rates, and those of major currencies, such as the dollar, the euro, and the yen, are not always consistent. Besides that, the high overhead in insurance companies also very difficult to classify so the clearer cost information can help the insurance companies to attribute their cost accurately. Additionally, when using the fair value accounting method, organizations are required to provide full disclosure of the changes in their financial information. The cost is ascertained on the basis of full utilization of capacity. Disadvantages of Historical Cost Regardless of the convenience offered by the historical Cost concept, there are a couple of disadvantages associated with historical costs that need to be considered.
Historical cost accounting Advantages and disadvantages Essay Example
Present suitable data to control and guide the management, this includes finding out the cost of every shipment, contract, process, service or unit job. Hence, the management does not need to waste too much time to collecting and maintaining data. Support the Union The labor union finds it quite simple to calculate bonuses. Cost Reduction New and improved methods of production are followed under cost accounting system. If so, correct and reliable data was available from the costing records which are highly useful to the government, shareholders, the creditors, and the like. Overhead Cost Overhead cost are those cost that is not related directly on the production activity and are therefore considered as indirect costs that have to be paid even if there is no production.
Γ°ΕΈββΉ Criticism of current cost accounting. Financial Reporting: Current Value and Historical Cost Accounting Methods. 2022
Cash Basis of Accounting: Under this system, only the transactions done through cash are considered for calculating the income, and even credit transactions are ignored. It leads to cost reduction. This will assist in using other essential methods to address the issue or eliminate the source. . Identify the reasons for Profit or Loss A good cost accounting system highlights the reasons for increasing or decreasing profit. There is no chance that any process, product, or department may be shut down. Only past performances are available in the costing records but the management is 2.
This accounting system keeps records of social welfare and the cost associated with performing them. The company will never have an excess inventory or a shortage because of this. Additionally, cost accounting can be complex and time-consuming, requiring significant resources and expertise to accurately track and allocate costs. Most businesses and sectors today use cost accounting as standard practice. Irrespective of the method of employed determination doing implies a pick from a figure of alternate. Fixed cost is handling as a period cost and charged into the net income and loss history incurred the period of accountingFringy production cost per unit of an point normally consists of the followers.
Spare capacity is occasionally utilized productively. The method makes sense because the products that are made or received first are the first ones to be utilized or sold. Expertise is Needed While Recording To properly record the books of accounts, one must possess the necessary knowledge and proficiency in identifying and summarising transactions so that the user who needs the information from the account can readily comprehend it. Comparison of the Results: This proper and systematic arrangement of the transaction and calculation of profit or loss helps compare the business's growth by comparing yearly performances between two firms. The costing records and aids provide this data in quickly preparing financial statements. This information is supplied by the costing records and helps to prepare financial accounts without any further delay.
Historical Cost Vs. Current Cost: Accountants Wrestle with Reporting Question
Standard costs are those cost which are established through place an nonsubjective connexion between specific inputs and estimated end products. Incremental costs are the additional costs associated with the production of one additional unit, and it only considers costs that are likely to change as a result of a specific decision, such as replacing machinery or equipment or adding a new product, and so on. One of the most of import map of top direction is to do determination. In the equity method, the investment is initially recorded in the same manner as recorded in the cost method. The major drawback is that the Companies Act does not recognize this system. The real statistics are compared to industry or economic norms using standard costing to show changes in efficiency.
Also, there is no consistency, as capital and revenue are treated as same. Rather than conveying the existent costs of direct stuff, direct labour, and fabricating operating expense to a merchandise, several makers allocate the expected or standard cost. Sometimes, spare capacity can be used profitably. Hence, the calculated cost is not correct always. Current value is also of use when there has been a prolonged period of excessive inflation. Cost accounting documents a business's interactions with its expenses and revenues to create various financial statements and manage costs.
