What do you mean by the term Cost, Costing and Cost Accounting ? State the advantages and disadvantages of Cost Accounting.
Answers
Advantages of Process Costing:
The following are the main advantages of Process Costing:
1. It is possible to determine process costs periodically at short intervals. Average unit cost can be computed weekly or even daily.
2. It is simple and less expensive to find out the process costs.
3. It is possible to have managerial control by evaluating the performance of each process.
4. It is easy to allocate the expenses to processes in order to have accurate costs.
5. It is easy to quote the prices with standardization of process. Standard costing can be established easily in process type of manufacture.
Disadvantages of Process Costing:
The following are the main disadvantages of Process Costing:
1. Cost obtained at the end of the accounting period are only of historical value and are not very useful for effective control.
2. Valuation of work-in-progress is generally done of estimated basis which introduces further inaccuracies in total cost.
3. Where different products arise in the same process, it is not possible to exactly ascertain the total cost of the products.
4. If any error occurs while calculating average costs, it will be carried through all the processes to the valuation of work in process and finished goods.
5. The computation of average cost is more difficult in those cases where more than one type of product is manufactured and a division of the cost element is necessary.