What is the cost benefit theory? What are the essentials of the cost effectiveness principle?

The principle of cost-effectiveness is the source of all economic concepts. You should only do this if the additional benefits of the action outweigh the additional costs. The "cost-effectiveness principle" means that under the condition of imbalance between the supply and demand of accounting information, an appropriate ratio should be maintained between the cost of accounting information supply and the resulting demand, and the cost of accounting information supply should not exceed the benefits obtained thereby, otherwise the cost of accounting information supply should be reduced.

Extended information: 1. The principle of cost-effectiveness is to analyze and compare the expenses and income in economic activities, and measure the gains and losses of economic behavior, so as to obtain the best combination of costs and benefits, in order to obtain the most profits.

Cost-effective principle. From the perspective of information economics, even if the activity costing method is used, it can only provide relatively accurate cost information but not absolutely accurate information. The more refined the identified cost drivers and the higher the accuracy of the cost information, the higher the measurement cost (information collection and analysis cost) paid by the activity cost system.

When the economic benefit of selecting a cost driver is greater than the measurement cost increased by the selection of the cost driver, the cost driver should be selected.

Otherwise, the choice of the cost driver should be abandoned. In practice, the cost-benefit analysis can be based on the differential cost analysis method: assuming that the measurement cost is used to represent the relevant cost required to be measured because a certain cost driver is selected, and the wrong cost is used to express the cost of the product due to the failure to select a cost driver, so that the enterprise management makes the wrong decision.

Then the difference cost is the difference between the cost formed by the two schemes that choose a cost driver or not, that is: difference cost = measurement cost error cost. If the difference cost is greater than 0, the choice of the cost driver should be abandoned; If the variance cost is less than 0, you can determine to select the cost driver.

The purpose of building a job costing system is not to have the most accurate cost system, but to minimize the sum of measurement and error costs.

2. The implementation of the principle of cost-effectiveness can improve the economic benefits of enterprises and maximize the rights and interests of investors, which is determined by the financial objectives of enterprises.

3. Comparative analysis of the cost of capital rate and the theoretical rate of funds before interest and tax in the financing activities of enterprises; In the investment decision-making, there is a comparative analysis of the investment amount and the investment income in each period; In daily business activities, there is a problem of comparative analysis of operating costs and operating income. As a result, the principle of cost-effectiveness is widely used in a variety of financial activities.

The principle of cost-effectiveness is the source of all economic concepts.

It proposes that you should only do this if the additional benefits of the action outweigh the additional costs.

The "cost-effectiveness principle" means that under the condition of imbalance between the supply and demand of accounting information, an appropriate ratio should be maintained between the cost of accounting information supply and the resulting demand, and the cost of accounting information supply should not exceed the benefits obtained thereby, otherwise the cost of accounting information supply should be reduced.

The principle of "cost-effectiveness" means that under the condition of imbalance between the supply and demand of accounting information, an appropriate ratio should be maintained between the cost of accounting information supply and the resulting demand, so as to ensure that the cost of accounting information supply cannot exceed the benefit obtained thereby, otherwise the cost of accounting information supply should be reduced. Specifically, it includes the following essentials:

1. Pursue maximum economic benefits.

Under the conditions of market economy, the purpose of enterprises is to pursue maximum economic benefits. Cost management.

It also serves this purpose, so there is a need to establish a cost-effectiveness concept. The so-called cost-effective concept of cost management is that cost management should look at the necessity and rationality of "input (cost)" from the comparative analysis of "input" and "output", that is, the standard for examining the cost is the ratio of output (income) and input (cost), the larger the ratio, the higher the cost-effectiveness, the lower the relative cost; The criterion for examining whether the cost should be incurred is whether the generation (income) is greater than the cost incurred for it, and if it is greater, the cost is beneficial and should be incurred. Otherwise, it shouldn't have happened.

2. The principle of cost-effectiveness is not to reduce costs one-sidedly, but to reduce unnecessary costs as much as possible under reasonable circumstances. Under the concept of cost-effectiveness, the absolute number of costs is not as low as possible, but the key is to see whether the benefits generated by the occurrence of a cost (the savings in revenue or the total cost of the enterprise caused) are greater than the omission of the cost expenditure. Traditional timber management emphasizes savings and savings in absolute cost, and the results of this may outweigh the losses.

3. All cost management activities of the enterprise should be based on the concept of cost-effectiveness. From the comparative analysis of "input" and "output", we should look at the necessity and rationality of "input" (cost), that is, strive to pay as little as possible and create as much use value as possible.

Extended information: 1. The cost-benefit principle stipulates that in the accounting system, the benefits of an activity must outweigh its costs. The costs and benefits of an activity (e.g., the preparation of a specific report) influence the decision-making of internal and external users.

Decisions on other system principles (control, relevance, adaptability and flexibility) are also influenced by the principle of cost-effectiveness.

The cost-effectiveness principle is the principle used to evaluate financial benefits, that is, a company will only make a decision when the benefits outweigh the costs. For example, if the cost of a production activity exceeds the benefit, it means that the production is loss-making; And the benefits of another production activity exceed the cost, so the idea of disturbing the rolling shows that the production strategy is correct.

The cost-effectiveness principle is the principle used to evaluate financial profits, that is, a business will only make a decision if the benefits outweigh the costs. For example, if the cost of a production activity exceeds the benefit, it means that the production is a loss-making asset; If the benefits of another production activity exceed the costs, then the production decision is correct.

The principle of cost-effectiveness tells us that in any production or operation process, economic efficiency must be considered. When the costs of the input outweigh the benefits, then the decision is not reasonable or should not happen. When the cost is less than the benefit, then it should happen.

The concept of cost-effectiveness is the basis of strategic cost management, and it is not a blind way for enterprises to reduce costs and expenses, but to allow enterprises to provide high-quality services to the market to obtain higher profits.

Basic Norms for Enterprise Internal Control》 Article 4 An enterprise shall follow the following principles in establishing and implementing internal control:

1) The principle of comprehensiveness. Internal control should run through the whole process of decision-making, implementation and supervision, covering all kinds of business and matters of the enterprise and its subordinate units.

2) The principle of materiality. Internal controls should focus on important business matters and high-risk areas on the basis of overall control.

3) The principle of checks and balances. Internal control should form mutual restraint and supervision in terms of governance structure, institutional setup, distribution of powers and responsibilities, business processes, etc., while taking into account operational efficiency.

4) The principle of adaptability. Internal control shall be commensurate with the scale of the enterprise's operation, business scope, competitive situation and risk level, and shall be adjusted in a timely manner as the situation changes.

v) The principle of cost-effectiveness. Internal control should weigh the implementation costs against the expected benefits to achieve effective control at an appropriate cost.