good costing system functions and characteristics
Answers
An ideal system of costing is that which achieves the objectives of a costing system and brings all advantages of costing to the business. Following are the main characteristics which an ideal system of costing should possess or the points which should be taken into consideration before installing a costing system.
(i) Suitability to the Business:
A costing system should be tailor-made, practical and must be devised according to the nature, conditions, requirements and size of the business. Any system which serves the purposes of the business and supplies necessary information for running the business efficiently is an ideal system.
(ii) Simplicity:
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The system of costing should be simple and plain so that it may be easily understood even by a person of average intelligence. The facts, figures and other information’s provided by cost accounting must be presented in the right form at the right time to the right person in order to make it more meaningful.
(iii) Flexibility:
The system of costing must be flexible so that it may be changed according to changed conditions and circumstances. The system without such flexibility will be outmoded because of fast changes in business and industry. Thus, the system must have the capacity of expansion or contraction without much change.
(iv) Economical:
A costing system is like other economic goods. It costs money just like economic goods. If the system is too expensive, management may be unwilling to pay as buyers are not willing to pay for the goods if these are expensive as compared to their utility. A costing system should not be expensive and must be adapted according to the financial capacity of the business.
The benefits to be derived from the system must be more than its costs as management will be willing to install the system when it’s perceived expected benefits exceed its perceived expected costs. In short, the system must be economical taking into consideration the requirements of the business. The cost of installing and operating the system should justify the results.
(v) Comparability:
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The costing system must be such so that it may provide facts and figures necessary to management for evaluating the performance by comparing it with the past figures, or figures of other concerns or against the industry as a whole or other department of the same concern.
(vi) Capability of Presenting Information at the Desired Time:
The system must provide accurate and timely information so that it may be helpful to management for taking decisions and suitable action for the purpose of cost control.
(vii) Necessary cooperation and participation of executives from various departments of the concern is essential for development of a good system of cost accounting. Moreover, management should have faith in the costing sys
Answer:
A costing system is intended to screen the costs brought about by a business. The system is included a bunch of structures, cycles, controls, and reports that are intended to total and answer to the board about incomes, costs, and benefit.
A high-quality costing system is one that achieves the objectives of cost in the best possible way and brings benefits to the business.
Explanation:
FUNCTIONS OF A GOOD COSTING SYSTEM
- Calibrating tasks to produce higher benefit
- Choosing where to reduce expenses in case of a business slump
- Matching real costs brought about against planned cost levels for control purposes
- Making key and strategic designs for future activities
CHARACTERSTICS OF A GOOD COSTING SYSTEM
- Suitability
The costing system, first and foremost, should suit the association. A few focuses to be thought about are the size of the association, the idea of the business, the state of the economy and so forth. The ideal costing system should give data that is important to decision making by the administration.
- Effortlessness
One more part of an ideal costing system is that it should be basic and simple. Individuals working in the association are not all certified or experienced cost bookkeepers. Indeed, even an individual in the association should have the option to comprehend and work this referring system effortlessly.
What's more, the data and information given by this cost bookkeeping system ought to likewise be introduced basically and obviously. This data will then, at that point, be handily interpreted and helpful to the administration for their motivations.
- Adaptability
Another significant necessity is that the costing system should be adaptable. An association capacity in an extremely unique climate, so it needs to change as indicated by these varieties.
This implies the costing system ought to likewise be adaptable to acclimate to this large number of varieties and changes.
So the system ought to have the option to adjust and do so sensibly quick in this speedy business world. There ought to be extensions for fast development and compression.
- Affordable
The whole place of a costing system is to give cost data to the administration so they can rehearse cost control. Assuming the expense system itself is too costly it invalidates the point. The advantage acquired from the costing system should offset the expense to run and keep up with the system.
Really at that time, it is gainful over the long haul. The necessities of the administration and the business should be thought about. What's more, as per the monetary ability of the business, a prudent costing system should be set up.
- Similarity
The ideal costing system furnishes the administration of the association with current realities and information in such a manner, that it tends to be contrasted and the information from the earlier year and furthermore with the information of different associations in a similar industry. This correlation assists the administration with assessing the exhibition of the association, thus it is a significant angle.
- Convenient
The costing system ought to furnish the executives with precise data when wanted by them. So the information should be given rapidly and as soon as possible for it to be best.
- Least Effort
An ideal costing system can be set up with the least exertion and changes to the current arrangement of the association. If the set-up is broad it will be an exercise in futility and cash.
So the set-up of the costing system should not interrupt the everyday elements of the association. The setting up of the association ought to be consistent.