Explain why accurate cost data is important to a business.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2016). The mark or mark type is shown in brackets.

1. [4-5] Effective explanation of the importance of accurate cost data to a business.
2. [2-3] Explanation of the importance of accurate cost data to a business.
3. [1] Understanding of cost data.
4. without good cost information a business operates in the dark
5. businesses must carefully record all their costs accurately so that profit can be determined each period and managers have the information to make decisions
6. a common method of setting sales prices (cost plus) requires accurate cost data – even if prices not determined in this way, managers need to compare sales prices against product costs
7. calculations of gross margin/gross profit require accurate cost of goods sold data – if not accurate, the information in the Income Statement is misleading
8. the Balance Sheet requires accurate data for the cost basis of inventory
9. controlling costs and becoming more efficient is often the key to competitiveness and companies need to use resources effectively – an accurate cost accounting system is vital – cost analysis is very important
10. to produce an accurate cash flow forecast
11. to produce accurate/useful break even analysis.