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Cost Accounting – I

Notes (vii) Reconciliation of Cost and Financial Accounts: If possible the cost and financial accounts
should be interlocked into one internal accounting scheme. The system of cost accounts
must be capable of reconciling with financial accounts so as to check accuracy of both the
system of accounts.
(viii) Promptness: An ideal costing system is one which provides cost data in an analytical form
to the management. So all the departments of an industry must analyse and record the
relevant items of cost promptly in order to furnish cost information on a regular basis
to various levels of management. This helps in checking up the progress of the business
activities on a regular basis.
(ix) Equity: The basis of apportioning overheads to products, departments or jobs must be fair
and equitable.

(x) Duties and Responsibilities of the Cost Accountant: Under a good system of cost accounting
the duties and responsibilities of the cost accountant should be clearly defined. The cost
accountant should have access to all works and departments.

1.8 Installation of Cost Accounting

At the outset it is to be understood that a common cost accounting system cannot be installed for
all types of business enterprises. The cost accounting system depends upon the nature of business
or industry and the product. Before a suitable system of cost accounting is installed it is necessary
to undertake a preliminary investigation so as to know the feasibility of installing cost accounting
system to such business activities. While introducing a system of cost accounting it should be
borne in mind that cost accounting system must suit the business. This means the system must
be simple and it must lead to savings through the control of cost, i.e., materials, labour and
overheads. For the successful functioning of the costing system, the following conditions are
essential:
(i) The duties and responsibilities of cost accountant must be clear.

(ii) There must be an efficient system of material control in business or industry.
(iii) A sound and well designed method of wage payment must be set up in business or
industry.

(iv) Printed forms must be used for quick compilation of various types of cost reports.
(v) The existence of sound basis for collection of overheads and a basis for its apportionment
to various production departments.
The following are the main factors to be considered before installing a cost accounting system:

(i) Nature of Business: The nature of a business implies the duration of its existence, position
in the industry or factory, the rate of growth and policy of management and the like. The
nature of business serves as the basis for designing the cost accounts in respect of simplicity,
necessity and investment involved in installing cost accounting system.
(ii) Organisational Factors: The problem of installing cost accounting is somewhat difficult
in case of an existing business organisation when compared to new business. However,
the existing set up of the business organisation should be least disturbed should the need
arise. In order to fix up responsibility to the executives, it may be necessary to group the
departments. The organisational factors to be considered are : size and type of organisation,
the levels of management, delegation and responsibility, centralisation and decentralisation,
departmentalisation, availability of modern office equipments, and number of supervisory
or managerial staff.

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