Question

A student planning a career in business management wondered why it was important to learn cost and management accounting. How would you respond? Give some examples to support your point of view.

Answer 1

Cost and management accounting is one of the important branches of accounting. It helps in taking managerial decision making on regular basis for operational and strategic purpose. Cost is one of the important aspects to be monitored in an organisation and cost and management accounting subject being a specialisation helps in development and application of skills needed in this area. Being cost competitive is imperative in today’s highly competitive world and cost and management accountants play an active role in this.

Cost and management accounting subject helps in following ways:

· It helps in understudying various cost concepts for example: cost elements of manufacturing- Direct material , Direct labor , manufacturing overheads, etc

· It helps in determining different components of cost of manufacture For example prime cost (Direct material + Direct labor), Conversion cost (Direct labor + manufacturing overhead),etc

· It helps in cost management through cost control and cost reduction. For example : Flexible budgeting technique, variance analysis technique

· It helps in determination of selling price of products. For example : Cost plus pricing, full cost based pricing ,etc

· It helps in accounting for cost based on method of costing for example : Job order costing       ( customer order driven) or Process order costing (non-customer order driven)

· It helps in profitablity analysis of the firm. For example : Break even analysis, Margin of safety analysis , etc