• 4 Marks

MA – April 2022 – L2 – Q5B – Introduction to management accounting

Explain four reasons why organizations need to measure costs, including valuation, profit measurement, decision making and control.

Cost measurement reflects the relationships between inputs and outputs. It is designed to provide more accurate information about production, support activities and product cost so that management can focus its attention on the products and processes with the most leverage for increasing profits.

Required:

Explain FOUR (4) reasons why organisations need to measure cost. (4 marks)

Organisations need to measure cost for a number of reasons:

Valuation: companies need to value inventory and work in progress for financial reporting purposes at the end of each reporting period.

Profit measurement: the measurement of cost of inventory and work-in-progress is closely linked to the measurement of reported profit.

Decision making: Selling price must be set at a level which covers the cost of producing goods and services.

Control: an organization needs to measure cost of goods and services being produced in order to compare them to the expected cost of those goods and services in order to take any corrective action as necessary.

Back to all questions

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form