Question

“Cost accounting is a tool of managerial planning
and control.” Explain..​

Answer 1

Answer:yes

Explanation:

First, when one starts a company, profits are expected but the main important thing over profits is cash and cost management. So internal managers plan a budget every year. This budget explains what are the expected costs for this year. Then they create different budgets like cash budget which explains how the cash will flow in and out of business. Capital expenditure budget where it explains what money will be spent for the purpose of purchasing plant and machinery. Production budget which explains the raw materials required for production and its purchase and output cost analysis. Expenses budget which explains what are the administration and selling expenses going to be for this year. Finally they create a master budget which is similar to income statement from all of these budgets. Then they wait for a year and check out if all the expenses what they expected were correct or wrong. For example, in production budget they check out if more raw material was consumed or lesser raw material was consumed to produce a product. Then they investigate why are there any differences. This is planning part.

Coming to control, cost accountants keep the costs of production at bay just to make sure they will make more profits or else they will incur losses due to high expenses. So they plan to manage inventory accurately so that storage costs are less, they avoid unnecessary office expenses, sometimes they reduce the staff, next they will use different pricing strategies to get desired profits.

So planning and controlling are the fundamental part of cost accounting.