The main advantages of cost accounting are given below:
Profitable and unprofitable activities are disclosed and steps can be taken to eliminate or reduce those activities from which little or no benefit is obtained or in change the method of production in order to make such activities more profitable.
It enables a concern to measure the efficiency and then to maintain and improve it. This is done with the help of valuable data made available for the purpose of comparison.
It provides information upon which estimates and tenders are based. In case of big contracts or jobs, quotations cannot be given unless the cost of completing the contracts can be found out.
It guides future production policies. It explains the cost incurred and profit made in various lines of businesses and processes and thereby provides data on the basis of which production can be appropriately planned.
It helps in increasing profits by disclosing the sources of loss or waste and by suggesting such controls so that wastages, leakages and inefficiencies of all departments may be detected and prevented.
It enables a periodical determination of profits or losses without resort to stocktaking.
It furnishes reliable data for comparing costs in different periods, for different volumes of output, in different departments and processes and in different establishments. This helps in maintaining costs at the lower point consistent with the most efficient operating conditions.
The exact cause of a decrease or an increase in profits or loss can be detected. A concern may suffer not because the cost of production is high or prices are low but also because the output is much below the capacity of the concern. This fact is revealed by cost accounts only.
Cost accounting discloses the relative efficiencies of different workers and thereby facilitates the introduction of suitable plans of wage payment to reward efficiency and to provide adequate incentive to the less efficient workers. A good system of costing promotes prosperity of the business and thus ensures greater security of service and adequate reward to workers.
It enables the creditors and investors to judge the financial strength and creditworthiness of the business. A sound business concerns with a good system of costing can attract more investors than a similar concern without an adequate system of costing.
Helpful to the government. It facilitates the assessment of Excise Duty and Income Tax and the formulation of policies regarding industry, export, import, taxation, etc. It also facilitates the preparation of national plans for economic development. It provides ready figures for use by the government for application to problems like price fixation, price control, tariff protection, and wage level fixation, payment of dividends or settlements of disputes.