Answer :
Answer:
Cost tracing is important because it helps a firm to make wise decisions.
Explanation:
Cost tracing can be defined as the process of matching a cost directly with a product being produced.
Variable cost that are accompanied with inventory are direct materials, direct labour and variable manufacturing overheard. the variable manufacturing overheard flunctuates based on amount of production. example is cost of electricity and gas.
Variable costing can also be used in determining cost-volume-profit relationships. This cost-volume-profit analysis aids managers in comprehending the minimum amount of inventory they need to produce to break even on their cost.
Variable costing can also be used in valuing inventory which makes it easier to compare the profitability of a product.
Absorption costing on the other hand, is advantageous for a small business because it complies with GAAP ( Generally Accepted Accounting Principle).
Absorption costing systems are easy to setup and less complicated than other costing systems. but the drawback of absorption costing is the way they handle fixed overheard cost.
Tracing the costs.
As per the question, tracing out the cost is an important division and helps in making proper judgments. The tracing helps the business to gain much from the direct relationships of the particular objects. The tracing can be an expensive and
thus answer is it helps the firm to make wise decisions.
- Cost tracking is important as it leads the business to profit and helps in ruling out various problems and the past performance includes the success for the future. It acts as a mental map for the solutions to the problems.
- Thus useful for business decision-making.
Learn more about the trace costs.
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