Characteristics of an Ideal System of Cost Accounting

A good system of cost accounting is that which achieves the objects of costing in the best possible way and brings to the business. An ideal system of costing should possess the following characteristics:

1. Simplicity

Costing system should be simple to operate and easy to understand. The facts, figures and other information revealed by cost accounts should be so presented as to make them easily graspable. As such the needless elaboration of costing records should be avoided.

2. Suitability to the Business

A costing system should be so devised as to suit the conditions, requirements, nature and size of the business. A costing system which serves the purposes of the business and supplies necessary information for running the business successfully is an ideal system for that business.

3. Economy

In order that the system of costing may become a profitable investment of the business, the cost of installing and operating the system must be within the financial capacity of the business.

4. Elasticity

The system of costing should be elastic and capable of adapting itself to altered conditions and must not be rigid. It should, in particular, be suitable to handle a large volume of work as also to deal with changes in the nature of business.

5. Accuracy

An ideal system of costing is that which ensures accuracy of the records to be maintained. If the costing records maintained are not correct and accurate, the results or conclusions drawn therefrom are bound to be inaccurate and misleading.

6. Comparability

The costing records must be presented in a scientifically classified form so that a comparative study of costing results of different periods can be made.

7. Promptness

An ideal system of costing is one in which information necessary for its functioning are promptly, easily and punctually available. Promptness can be ensured if arrangements are made for the prompt supply of records by the various departments relating to materials, labour, overhead etc., to the costing office and the data obtained are promptly analyzed and recorded.

8. Reconciliation of Results

The costing system should be so maintained as to make reconciliation of cost accounts with financial accounts easy and simple. This reconciliation is very essential for checking the accuracy of cost accounts as also for measuring the efficiency of costing system.

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