Question

Cost accounting logic can lead managers to keep their resources busy all the time, increasing productivity with no regard to demand. What is the negative result from this effect?

Short answer

It creates a bottleneck.

Step-by-step solution

Understanding cost accounting

An organization's production system works collaboratively with other major functional areas of an organization. Cost accounting is one of the managerial accounting that specifically aims at capturing the total production cost by evaluating the total variable and fixed costs.

Negative impact of cost accounting

Cost accounting is concerned with the performance evaluation of an organization, investment justication, inventory valuation and cost evaluation. Concerning cost accounting, the performance of an organization is generally based on cost as well as full utilization. It leads managers to keep their resources active by raising productivity without regard to demand.

As the demand consideration is overlooked, the negative outcome of this method is the development of surplus inventory. Since there is no idle time for resources, machines are constantly activated for production, producing in a bottleneck.