Fairly different from the financial accounting, the cost accounting standards (CAS) is an internally focused, firm-centric approach, adopted by majorly manufacturing firms and financial and retail institutions. It is used for estimating inventory, cost control and profitability. It turns to be much more specific and flexible when it comes to valuate inventory. The purpose of CAS is to provide a firm with an actual picture of its goods’ costs, and simultaneously evaluates the business performance and process. Since it can be tinkered and adapted to meet the changing needs of a business, it is widely practiced by today’s firms.
Listed below are 8 top secrets why cost accounting standards is getting more popularity in 2017.
1. Cost Control:
CAS system is a great way to control cost. It never allows expenses beyond the budget amount. Under it, product standards and budgets are fixed. If there is any variation in performance, reasons are found. And the management is informed to exercise control.
2. Removal of Wastes & Cost Reduction:
The CAS system establishes new and improved methods. It fixes a level of standard for every product or service, which further leads to reduce cost and eliminate losses and inefficiencies.
3. Finding Causes of Profit or Loss:
The CAS method torches light on profitable and unprofitable activities, and identifies the causes of profit or loss. Primarily, this is achieved by ascertaining the cost of each product or each employee and then comparing it with the price obtained. Once the reason of profit or loss is found, management takes remedial action and strives for maintaining profitability of the concern.
4. Price Fixation:
If the cost accounting method is accurately put into practice, it records the total cost of the product which can be available easily. The cost recording is highly useful to fix the price of a product.
5. Financial Accounts Help:
When it comes to prepare financial accounts, the information like work in progress, value of closing materials, and finished goods are required. Such information is easily available at costing records. So it helps in preparing financial accounts without losing even a single moment.
6. Fraud Prevention:
The cost accounting standards includes auditing cost and keeping costing records which are very important for the creditors, shareholders and government alike. So, it prevents frauds and other scams.
7. Monitoring Labor Costs
Through the cost accounting method, it is easier to monitor and control labor costs. Depending on your business nature, you can take wage expenses from jobs, orders and others. This means, you can be able to decide and choose how you regulate productivity and efficiency. This is really very important when you want to estimate marginal productivity of every individual employee.
8. Buying Decision:
Based on the cost information, the management can be able to decide whether buy or make a product in open market. It can easily pick the best and affordable products from several options.
The cost accounting standards system plays a very crucial role in determining costs on negotiated procurements and driving efficiency to the business. It enables your management to scrutinize information on the basis of criteria that it values. The CAS further enables you to ensure how resources are utilized, prices are set, risks are assumed and capital is increased.