Installation of Costing System

The installation of a costing system requires careful consideration of the following two inter-related aspects:

(i) Overcoming the practical difficulties in introducing the system.

(ii) Main considerations that should govern the installation of such a system.

Practical difficulties: The important difficulties in the installation of a costing system and the suggestion to overcome them are listed below:

1. Lack of support from top management: Many a times the costing system is introduced at the behest of the managing director or the other director without preparing the other members of the top management team. This results in opposition from the various managers as they consider it as interference as well as uncalled for check on their activities. They, therefore, resist the additional work involved in the cost accounting system.

2. Resistance from the existing staff: The existing financial accounting staff may offer resistance to the system because of a feeling of their being declared redundant under the new system.

3. Non-cooperation at the other levels: The foreman and other supervisory staff may resent the additional paper work and may not co-operate in providing the basic data which is so essential for the success of the system.

4. Shortage of trained staff: Costing is a specialized job in itself. In the beginning therefore, qualified staff may not be available. However, this difficulty can be overcome by giving the existing staff requisite training about the work involved and recruiting additional staff if required.

5. Heavy costs: The costing system will involve heavy costs unless it has been suitably designed to suit specific requirements.

Main consideration: In view of the above difficulties and suggestions to overcome them, the following should be the main considerations to be kept in mind while introducing a costing system in a manufacturing organisation:

1. The product: The nature of the product determines to a great extent the type of costing system to be adopted. A product requiring high value of material contents requires an elaborate system of materials control. Similarly, a product requiring high value of labour content requires an efficient time-keeping and wage system. The same is true in case of overheads.

2. The organisation: The existing organisation should be disturbed as little as possible. It becomes, therefore, necessary to ascertain the size and type of organisation before introducing the costing system. The scope of authority of each executive, the sources from which the cost accountant has to derive information and the reports to be submitted at various managerial levels should be carefully gone through.

3. The objective: The objective and information which the management wants to achieve and acquire are also to be cared for. For example, if the concern wants to expand its operations, the system of costing should be designed in a way so as to give maximum attention to production to sell its products; the selling aspect would require greater attention.

4. The technical details: The system should be made to secure the sympathetic assistance and support of the principal members of the supervisory staff and workmen.

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