What are the important factors to be taken into account for installing the costing system in an organisation?|openbook247

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What are the important factors to be taken into account for installing the costing system in an organisation?

Cost accounting system is an internal accounting system. It has arrises due to the necessity of the management to know the different information. So that it can do it’s functions properly. That is why, now a days every large size organisation has introduced cost accounting system. The cost accounting system requires careful consideration. The consideration are:-

1.Main Considerations.

2.Partial Considerations.

What are the Main Problems in Installation of Costing system:

1.Main Consideration:


The first Consideration while introducing costing system is to determine the objectives to be achieved through this system. The objectives may be measuring the efficiency are mere fixing prices. So, it should be seen that the costing system to be introduced will be able to achieve such objectives.

ii.The product:

The nature of the product determine the type of costing system to be adopted. These are some product whose material cost content in the total cost is very high. In such organisation very strict material control system should be adopted. Similarly, a product may have high labour cost content. Such product requires an efficient time keeping and wage systems.


The 3rd consideration to be kept in view is different organisational factors such as; Studying different level of management, knowing the authority and responsibility of different executives working in the organisation, layout of manufacturing department, methods of dealing with wastage of material, the system of time recording, methods of computing and paying wages, amount of fixed variable and semi-variable overheads involved etc.

iv. Startergic Factors:

Before introducing costing system in the organisation, we should also pay attention towards some factors which are vital for the organisation.

Ex:- An organisation producing cosmetic or drugs, production cost may not be so important as that of marketing cost. 

Hence, the produced cost accounting system should pay more attention towards marketing and distribution functions.

v.Cost Records:

Deatils of costing records to be maintained should also be considered. This depends on materiality concerned element of cost. A choice should also be made integral and non-integral system of accounting. Separate set of costing records are maintained for cost and financial transactions. If the organisation is a big one, it is suitable to maintain separate set of books. But if separate set of books are maintained, we should see that there is singular reconsilation between cost and financial records.

vi. Standardisation:

The forms to be used by the foreman, workers etc, should be standardise as far as possibl. In designing the forms it should be seen that minimum clerical work will be involved in maintaining such forms.


The active participation and co-operation of different levels of management as well as workers are necessary for successful operation of costing system. So, before introducing costing system, they should be consulted.

viii.Regularity and Promptness:

The costing system should be so designed that the cost information will be available to different levels of mangers promptly and regularly.

ix.Flexibility and Economy:

The costing system should be flexibles enough so that necessary changes can be made in it with the change in the business environment. Another aspect that should be considered is the cost involved in introducing the costing system.

What are the Practical Problems in Installation of Costing system:

2. Practical Considerations:

While introducing costing system we may face some practical difficulties such as:-

i.Lack of support from top management:

The support of top management is necessary for the sucess of any activity in the organisation. But sometimes it is found that the top management oppose the introduction of some new thing in an organisation because of their biasness or due to some other reasons. If they oppose costing system in the organisation. It indicates their lack of cost consioisness. So, efforts should be made to create such cost consioisness in their mind.

ii.Non Co-operation from Other Staff:

Sometimes the costing account staff oppose the introduction of costing system in the organisation due to the different reasons. So, they should be properly oriented.

iii.Shortage of trained staff:

Costing system is a specialised system. It requires trained staff. But in the beginning, the organisation may face the shortage of tarined staff. So, trained staff from the outside may be recruited or existing accounting staff should be tarined in different aspects of costing system.

iv. Financial difficulties:

Cost accounting system is expensive because we have to maintain separate cost department office, recruit specialised cost staff and also maintain so many cost records. Due to financial difficulties, small organisation can’t introduce costing system in their organisation.

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