Uses of Cost Information

Cost-plus pricing uses cost information to set prices by calculating the cost of producing a product or service and adding a percentage markup for profit.
Assessing profitability of products or services requires understanding of cost information to calculate the gross and net profit margins, thereby identifying high or low-profit lines.
The use of cost information can establish break-even points, which is the level of output at which a business neither makes a profit nor a loss.

Cost information is used for make or buy decisions, where businesses decide whether to produce a product or service internally or to outsource it.
Costing can help businesses identify areas to cut down or invest more, thus assisting in allocation and control of resources.
Cost information is integral to investment appraisal techniques such as payback period, net present value, and internal rate of return.

The analysis of cost information can indicate inefficiencies or wastage in the production process, offering opportunities for cost reduction.
Regular monitoring and comparison of actual costs against the budgeted costs assists in controlling expenditures and highlighting any deviations.
Activity based costing (ABC) uses cost information to identify high cost activities, helping businesses focus on cost reduction efforts in these areas.

The use of cost information in variance analysis measures the performance of a business by comparing actual results against planned or standard costs.
Cost information assists in assessing departmental performance by comparing departmental costs against budgeted figures, either absolute numbers or percentage variances.
In transfer pricing, cost information can determine the internal price at which divisions of the same company sell products or services to each other.