The profit of any activity can be ascertained by matching cost with the revenue of that activity. The purpose of this step is to determined profit or loss of any actability on an objective basis. Providing basis for operating policy

Cost accounting is an essential tool for the management to formulate operating policies and to take business decisions like determination of cost-volume-profit relationship, whether to buy or to make an article, etc. are helpful to the managemnt in taking decisions regarding that is 1, Production of product, 2. utilisation of idle capacity, 3. The most profitable sales mix,.