Cost accounting systems are important in the fixation of prices. Additionally, a cost accounting system is a framework that firms use to estimate the cost of their products for profitability analysis, inventory valuation, and cost control. Moreover, accurately estimating the cost of products is critical for profitable operations. Also, a firm should determine which products are profitable while which ones are not. Furthermore, a costing system assists in estimating the closing value of materials inventory, work-in-progress, and the inventory of final products for the preparation of financial statements. Cost accounting is a form of managerial accounting that aims to capture the total cost of production of a company by assessing the variable and constant costs of each step of production.
cost accounting systems and fixation of prices
ADVANTAGES OF COST ACCOUNTING SYSTEMS
Primarily, cost accounting systems help in the measurement and improvement of efficiency to reduce the cost of production. This is through comparisons and analysis of the differences that a firm observes. Additionally, it enlightens a firm on those activities that are profitable and those that are unprofitable. This is by ascertaining the cost of each product and comparing it with the price. Moreover, it assists in the fixation of prices of products basing on the cost of production. Setting prices without costing information may lead to a quotation of too high or too low prices. Also, cost accounting systems act as a guide in reducing prices.
advantages of cost accounting systems
IMPORTANT FACTORS IN FIXATION OF PRICES
Fundamentally, the cost of production is the main component of price. It is necessary to compile data relating to the cost of production before the fixation of prices. Additionally, the firm may utilize cost accounting systems to fix appropriate prices. Also, the demand for a product is significant in setting its price. Moreover, if the demand is relatively more than the supply, a firm can fix higher prices. Also, a firm needs to consider the price of competing firms. In the cases of competitive prices, a firm must keep the prices low.
important factors in fixation of prices
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