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Cost Accounting as A Tool of Decision Making in Today Business

Decision making in today business is one of most difficult work of manager. Decision making is the process to select best alternative out of different alternative for solving business problems. A prudent cost accountant can use different techniques of cost accounting and make it the best tool of decision making in business.

We can see most common problems in business like to fix the price of product, to reduce the cost of product and to increase overall profitability of business.

Cost accounting provides cost sheet, statement of material and labour utilization and some other reports like budget which can be used immensely for comparing the standard cost. After this, businessman can decide best price of products. We can also compile the following information of cost accounting which can be used for business decision making.

1. Cost Sheet

Cost Sheet is very helpful to find the cost of each unit. By comparing it with previous year or previous month's cost sheet, manager can take the decision regarding reducing the cost of product.

If our costs are increasing which has been shown in cost sheet , then manager can identify the place of production or sales where company is wasting its money. After this, manager to reduce the wastage by using quality product techniques, to drop useless production processes and also standardization of raw material.

2. Labour Cost Reports

Labour cost reports are helpful to reduce labour turnover and idle time cost. In the off season, some of workers are free and doing nothing. This time can be calculated from statement of time utilization of each worker in production purpose and by studying its statement, manager can take decisions to transfer some of workers to other busy departments for effective utilization of human resources for business purposes.

3. Overhead Utilization Reports

These reports are helpful to pay only genuine overheads and distribute it on the product according to valid basis. These reports are helpful to calculate the correct cost of overhead and to control indirect expenses of business.

Following are the techniques of Cost Accounting which can be used for decision making process in business:

[*] Marginal Costing :

To solve the linear programming problems, we need to linear variables. In marginal cost, we have two variables and  both  production level and variable cost are linears. So by creating their relationship, we can decide  the production level by maximizing our profitability or minimizing our cost. In other words, we can find equilibrium production point under marginal costing technique.

[*] Analysis of Variance :

To reduce the deviation after study the analysis of variance in cost accounting.

[*]  Cost Benefit Analysis or Break Even Point Analysis

To purchase the fixed assets at minimum cost after studying cost benefit analysis of cost accounting. We can also use this tool for production purposes also. We can check the level of production where total cost is equal to total revenue and  this level will be break even point. We must produce up to this level for securing our business from losses. So, it indicates our business to decide best.

[*] Activity Base Costing

In ABC costing we calculate the each unit's total cost on  the basis of different activities. It reduce indirect cost after assigning it on product directly.

Eventually, cost accounting is helpful to check each and every point of business where money is misusing and due to this our cost is increasing. By reducing this cost, cost accounting is helpful to increase the return on investment.

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Accounting Education: Cost Accounting as A Tool of Decision Making in Today Business
Cost Accounting as A Tool of Decision Making in Today Business
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