Page 17 - DCOM202_COST_ACCOUNTING_I

Unit 1: Nature and Scope of Cost Accounting

(iii) Accounting Aspects: The factors to be considered in respect of accounting are: number of Notes
financial records, existing forms, registers used in business and number of copies required
in business activities.
(iv) Area of Control: The areas where cost control is to be exercised is to be identified so that
each manager may take action relevant to his business activities. If material and labour
control occupies significant area of control, it must be given topmost priority for exercising
control over materials and labour.
(v) Product Price: The price or range of products manufactured and sold also determine the
method of costing to be selected. Accordingly price or range of products must be analysed
in terms of size, models, fashions, market area, competitors and whether the products are
made to customer’s specification or for stocking and selling.

(vi) Reporting: The cost accounting system to be installed must ensure frequency and
promptitude in reporting cost data to the management. It must also to be pointed out that
duplication of reporting is to be avoided. Further, only that information which is relevant
for the management in a particular context alone should be reported.
(vii) Selling and Distribution: The chief factors to be considered with regard to distribution
process are the warehousing facilities, internal and external transport, market survey and
other relevant measures, terms and conditions of sale and procurement of orders from
customers.

(viii) Use of Electronic Data Processing: In modern time, it has become a common practice to
use electronic data processing equipments and computers. In this situation, it is essential
to ensure that the equipment meets the needs of the system but not the other way round.
(ix) Technical Considerations: Technical considerations that influence the installation of cost
accounts are size of factory, flow of production, existence of departments and laboratories,
capacity of machines and equipments, cost control techniques, internal transport, etc.
(x) Uniformity: The practice of adopting uniform costing facilitates interfirm comparison
among various firms belonging to the same industry of factory. Further, it also has thebenefit

of adopting common costing practice if a holding company has number of subsidiaries.

Task List the characteristics of an ideal costing system.

Steps involved in installation of accounting system are given below:
1. Understanding of the process flow: In any type of organisation whether it is manufacturing
or service, understanding of product or service process flow will be important to install the
costing system, this process involves study the entire flow of the product or process from
input stage to output stage of the product or service. This starts from the order receiving
from the customer and how the same will be processed inside the organisation, what
and all activities involved in the process and how it will be delivered to the customer.
Understanding of process flow first steps to install the costing system in any organisation

2. Understanding of the costing methods: Each industry has got different costing methods
involving in the operations. Costing methods are process costing, job costing, batch costing,
service costing, contract costing, etc. Manufacturing industries mostly apply process
costing, job & batch costing system. Service costing and contract costing will apply for the
service industries. So to study and understand the applicable method of costing is the next
step to install the costing system.

LOVELY PROFESSIONAL UNIVERSITY 11