Advantages Of Cost Audit

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The important advantages of cost audit are briefly discussed as follows:

A. Advantages Of Cost Audit To The Management

1. Cost audit provides reliable cost data for managerial decisions.

2. Cost audit helps management to regulate production.

3. Cost audit acts as an effective managerial tool for the detection of errors, frauds and irregularities so that reliable and smooth functioning of the system is continued.

4. Cost audit reduces the cost of production through plugging loopholes relating to wastage of material, labor and overheads.

5. Cost audit can fix the responsibility of an individual wherever irregularities or wastage are found.

6. Cost audit improves efficiency of the organization as a whole and costing system in particular by constant review, revision and checking or routine procedures and methods.

7. Cost audit helps in comparing actual results with budgeted results and points out the areas where management action is more needed.

8. Cost audit also enables comparison among different units of the factory in order to find out the profitability of the different units.

9. Cost audit exercises moral influence on employees which keeps them efficient and alert.

10. Cost audit ensures that the cost accounts have been maintained in accordance with the principles of costing employed in the industry concerned.

B. Advantages Of Cost Audit To The Shareholders

1. Cost audit ensures that proper records are maintained as to purchases, utilization of materials and expenses incurred on various items i.e wages and overheads etc. It also makes sure that the industrial unit has been working efficiently and economically.

2. The cost audit enables shareholders to determine whether or not they are getting a fair return on their investments. It reflects managerial efficiency or inefficiency.

3. Cost audit ensures a true picture of company's state of affairs. It reveals whether the resources like plant and machinery are being properly utilized or not.

C Advantages Of Cost Audit To The Society

1. Cost audit tells the true cost of production. From this the consumer may know whether the market price of the article is fair or not. The consumer is saved from the exploitation.

2. Cost audit improves the efficiency of industrial units and thereby assists in economic progress of the nation.

3. Since price increase by the industry is not allowed without justification as to increase in cost of production, consumers can maintain their standard of living.

D. Advantages Of Cost Audit To The Government

1. Cost audit assists the 'Tariff Board' in deciding whether tariff protection should be extended to a particular industry or not.

2. Cost audit helps to ascertain whether any particular industry should be given any subsidy in order to develop that industry.

3. Cost audit provides reliable data to the government for fixing up the setting prices of the various commodities.

4. Cost audit helps the government to take necessary measures to improve the efficiency of sick industrial units.

5. Cost audit can reveal the fraudulent intentions of the management.

6. Cost statements may be helpful to authorities in imposing tax or duty at the cost of finished products.

7. Cost audit facilitates settlement of trade disputes of the companies.

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