Characteristics of Ideal Cost Accounting System

Characteristics of Ideal Cost Accounting System

Characteristics of Ideal Cost Accounting System

Cost accounting is the process of collecting information about the costs incurred by a company’s activities, assigning selected costs to products and services and other cost objects, and evaluating the efficiency of cost usage.

An ideal costing system provides the right and timely information’s to the management at the right time and right direction to take the right decisions. A good costing system must contain the following characteristics to function properly. An ideal system of costing is that which achieves the objectives of a costing system and brings all advantages of cost to the business.

(a) Simplicity: Should be very simple and clear, so that an average man can understand the functions.

(b) Suitability: Costing system must be devised such manner that suits even for the small scale industries.

(c) Flexibility: Must be flexible, so that in case of any changes required from time to time in the business are made possible.

(d) Economical: Maintaining a separate costing department and recording are quite expensive. Therefore, the expense must on the basis of the finance available and expenses must be less than the benefits derived from the system.

(e) Comparable: The records maintained are should be easily comparable with other year records. The past records must serve as a basis to guide the future.

(f) Less Clerical Work: Work like preparation of statement and filling forms should be simple and short as most of the workers are may not be well educated.

(g) Control: An effective way of a control system must be implemented over material; labor and overhead cost as it will be helpful to minimize the wastage of material, labor, and overhead costs.

(h) Effective wage system: There should be proper timing schedule for workers for the time the spent on different jobs in order to prepare the wages.

(i) Uniformity: All the forms and statements using by the costing accounting system must be uniform in terms of size and design and quality of the paper.

(j) Departmentalization of expenses: A proper plan should be devised in order to implement department wise expenses as it will be helpful to ascertain the costs and other overheads by department wise.

(k) Reconciliation: The system of cost accounting must be capable of being reconciled with financial accounting so as to check the accuracy of both the system of accounting, i.e., Financial and cost accounting.

On top of all the above, the duties and responsibilities of a cost accountant should be defined in advance in a structured manner.