Characteristics of an efficient Cost Accounting system

Characteristics of an efficient Cost Accounting system

An efficient cost accounting system should meet all its objectives and achieve all the advantages of a good cost accounting system. It should possess the following characteristics and should be taken into consideration at the time of installation of a cost accounting system.

1. Suitability to the business: Cost accounting system should be made to suit the specific needs of an organization, division department even a product line. The system should be designed according to the needs, requirements and size of the business. It should supply the necessary information for running the business efficiently.

2. Simplicity: The system should not be complicated. It should be simple and capable of being understood by the costing staff without much difficulty.

3. Flexibility: The cost accounting system should be designed in such a way that it may be flexible enough to be changed according to the fast changing conditions and circumstances of business and industry. Thus, the system must have the capacity of expansion or contraction without much difficulty.

4. Cost Effective: The system should be economical both in installation and operation. The benefits to be derived from the system must be more than the costs involved. It must be adapted according to the financial capacity of the business.

5. Comparability: The costing system should provide all the necessary facts and figures to the management for evaluating the performance by making a comparison of these figures with the past figures of the same concern or those of other concern or against industry as a whole or other departments of the same concern.

6. Timely presentation of information: The system should be capable of providing accurate and timely information so that the management can make decisions for effective cost control.

7. Minimum changes in the existing organization structure: The costing system must not disturb much the existing system of delegation and division of authority and responsibility. The system should be designed in such a way that it requires as minimum changes as possible in the organizational set-up.

8. Uniformity of forms: All the forms, proformas, procedures etc. used throughout the organization should be uniform in size and quality of paper. This avoids confusion and leads to quicker and better understanding of cost data by staff in different departments.

9. Minimum clerical work: Since most of the workers are not well educated, forms and procedures should be designed in such a way that clerical work is reduced to the minimum.

10. Effective control on materials: As materials usually account for a greater proposition of the total cost, there should be an efficient system of stores control.

11. Adequate control on labour cost: There should be well defined procedures for recording of time, preparation of wage sheets and disbursement of wages. There should be strict control on idle time, holiday with pay and overtime.

12. Departmentalization of overheads: There should be an effective system of collection, allocation, apportionment and absorption of overheads so that ascertainment of accurate cost is possible. 13. Reconciliation of cost and financial Accounts: Cost accounting should be designed in such a way that it is possible of integrate or reconcile both cost accounting and financial accounting systems. This can be done through control accounts.

14. Defining duties and Responsibilities of Cost Accountant: Under a good system of cost accounting the rights, duties and responsibilities, of the cost accountant should be clearly defined. Because of this, he is able to know clearly whom he should approach, which information and which cost reports are to be made ready for whom by what time.

15. Timely availability of cost reports: The system should be designed in such a manner that cost reports and other cost information are made available as and when required.

(Visited 198 times, 1 visits today)
Share this: