Installation of Cost Accounting System | Principles | Pre-Requisites

Installation of Cost Accounting System

A system of cost accounting may not be same to all types of industry or undertakings. There is a different nature of business or industry. The volume of business differ from one business to another. Moreover, each business or industry has its own problems. Hence, the need of cost accounting system also differ.

Important Principles

To suit the specific needs of any type and nature of business, a new system of cost accounting should be developed and applied. Even though, the following principles are kept in mind while designing and installing cost accounting system in an organization.

1. Least Disturbance

The working of the organization should not be disturbed at the maximum by introducing cost accounting system. A least disturbance may be accepted. At the same time, cost accounting system must be fulfilled the specific requirements of the organization.

2. Creation of Faith

Both employer and employees have faith on the cost accounting system. The employer can create a faith by receiving expected benefits from the system. If so, the employees may put their faith on the system, which leads growth of the organization.

3. Simplicity

The system should be simple to understand. If so, the employees can work efficiently.

4. Easy Applicability

The system should be capable of applying by the ordinary employees of an organization. The success of any cost accounting system is fully depending on its applicability.

5. Gradual Application

An organization can apply the cost accounting system in different phases i.e. step by step. Hasty application may disturb the work and leads to failure.

6. Economy

New records and formats may be used after installation of cost accounting system. It should involve minimum cost. The benefits derived from the installation of cost accounting system should be more than the expenses incurred. Hence, unnecessary records and formats may be eliminated under the system.

Pre-Requisites of a Good Cost Accounting System

Every organization is interested to get maximum benefits from the installation of Cost Accounting System. The following points have to be carefully considered by the organization before installing a Cost Accounting System. Hence, these points are considered as pre-requisites of a good cost accounting system.

1. Size, Layout and Nature of Business

These are playing vital roles in deciding the requirements of an organization. The installation expenses should not overweigh the expected benefits. Trading concern requires little cost accounting service. But, the manufacturing concern requires much service from the cost accounting system.

2. Nature, Methods and Stages of Production

These determine the methods of costing to be applied. A system of cost accounting is to be developed in such a way that cost is identified at every stage of production.

3. Organizational Activities

The existing cost control activities are carefully examined. If there is any defect or loopholes, such defect and loopholes should be rectified before installing cost accounting system.

4. Existing Departments and their work

Generally, every manufacturing organization has separate departments for manufacturing, administration, sales and distribution. Now, the working efficiency of all these departments is examined along with their cooperation with other departments. If there is any in efficiency find out in any department, suitable suggestions may be provided to improve the efficiency.

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