Advantages

•       Each department is viewed as separate profit centre where department accounts is useful to evaluate performance of individual department by ascertaining trading, profit or loss of each department
•        The financial results namely trading profit or loss of each department can allow management to either discontinue the departments which are incurring losses or to take measures to improve the performance
•         As the profitability of each department can be ascertained by department accounting, the efficiency or inefficiency of each department manager can be evaluated and accordingly remunerated or monitored.
•         Help management to know the fixed cost of each department
•         By ascertaining the fixed cost of each department, the break even point of each department can be worked out
•         Facilitate the preparation of departmental budgets after taking into account the future development/expansion plans of the firm
•       Inter-departmental transactions are priced as per transfer pricing rule agreed upon and departmental profitability is assessed independently which encourage constructive competition amongst the departments which should benefit the overall company’s business.