Scenario

When management understands the overall cost structure of a company,they are in a better position to identify possible cost reductions without negatively affecting the quality of products sold or service provided to customers. Management should also keep a close eye on the cost trend to ensure stable cash flows and no sudden cost increases take place unexpectedly.

• When examining the profitability of an organization how does the understanding of cost accounting and the existing cost structure system assist in becoming more efficient and as such more profitable?