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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

Which of the following best describes the role of cost accounting in helping management control operations?

Cost accounting helps control operations by comparing actual costs with predetermined standards or budgets and reporting variances, so management can take corrective action. It is an internal management tool, unlike statutory reporting to shareholders or tax authorities, and it is not just a record of cash flows.

  1. AIt compares actual costs with predetermined standards or budgets and highlights variances for corrective actionCorrect
  2. BIt records only the cash receipts and payments of the business for a period
  3. CIt prepares statements solely for the use of shareholders and tax authorities
  4. DIt determines the legal ownership of business assets

Explanation

Cost control works by comparing actual cost with a target such as a standard or budget and analysing the differences so that management can act. Recording cash alone or preparing statutory statements for outsiders are not the aims of cost accounting.

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