lOMoARcPSD|25448604
d) Decisions about the bases for apportionment of indirect common costs, methods for
absorption of overhead expenses, guidelines and specifications for various types of reports
and their periodicity etc., are to be taken.
e) Decision about the location for cost office is to be taken considering the sources from which
cost data are to be collected. It is better if it is situated adjacent to the factory.
f) Define clearly the objectives to be accomplished through costing system.
g) Decide about the structures of cost account.
h) Determine the bases on which the difference overhead expenses are to be allocated
apportion and absorbed.
i) Decide about the organization of cost office.
j) Define the relationship of cost office with other offices and departments.
This way ,decisions are to be taken about each and every aspect of costing practices, polices,
procedures, etc., and necessary arrangements are to be made to recruit and/ or train the people
to take up the new assignment, and to get the necessary forms, records, etc., ready for use.
Even after the installation of the system, it is necessary to supervise the working of the system
for further improvements.
Difficulties in Installing Costing System: While installing a costing system, cost accountant
is expected to face any a number of problems and difficulties. A clear understanding of these
problems is prerequisite to take appropriate measures to overcome the same and for the smooth
installation of costing system. A few practical difficulties, other than the technical costing
problems, are identified below together with the suggestions to overcome the same.
a) Lack of Support from the Top Management and Other Departmental Heads: In
many a number of organizations, decisions to install costing system is taken by the
managing director or by some other authority without understanding the benefit of the
system. This creates an impression in the minds of the departmental heads that the
system is a device to check their activities and power, and therefore, they may feel it as
a direct interference in their activities. Consequently, they may not extend full
cooperation and support to the cost accountant which is a prerequisite for the purpose
of installing and operating costing system. In order to overcome this difficulty, it is
necessary on the part of the cost accountant to educate all those who resist the
installation of costing system about the benefits, advantages, etc. He has to convince
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
, lOMoARcPSD|25448604
them that the system is for their benefit and for the system is for their benefit and for
the benefit of the whole organization.
b) Resistance from the Existing Financial Accounting Staff: Whenever the initiatives
are taken to install a new system, there will be a strong protest and resistance from the
staff. Because, they may feel that the installation of costing system may result in the
reduction in their importance, position and career improvement opportunities in their
organization. The cost accountant should, therefore, convince them that the new system
is in no way a substitute to the financial accounting and therefore, there is no threat to
their jobs, promotional opportunities, etc. Further, he has to educate them to the effect
that the new costing system works as a supplement to their financial accounting system
and it will create new opportunities to them.
c) Non Cooperation from the Supervisory Staff: The foremen, supervisors and their
staff may not extend their support and cooperation which is one of the prerequisites for
the successful installation and operation of the system. Because, provision of accurate
information is absolutely essential for successful installation and implement of the
system. Their non-cooperation and resistance may be on the ground that the installation
of costing system may result in additional paper work for them. In order to overcome
this difficulty, it is necessary to educate the supervisory staff by explaining the benefits
of the system and the role they have to play. This proper education is necessary to win
their confidence to the system.
d) Shortage of Qualified Trained Staff: At the initial stage of installation, normally there
will be a shortage of qualified and trained staff. But, this can be overcome by taking
steps to train the existing staff and recruiting additional qualified staff.
Elements of Cost
A cost is composed of three elements, i.e., material, labour and expenses. Each of these
elements may be direct or indirect.
Material Cost
According to CIMA UK, material cost is “the cost of commodities supplied to an undertaking”.
Materials may be direct or indirect.
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
d) Decisions about the bases for apportionment of indirect common costs, methods for
absorption of overhead expenses, guidelines and specifications for various types of reports
and their periodicity etc., are to be taken.
e) Decision about the location for cost office is to be taken considering the sources from which
cost data are to be collected. It is better if it is situated adjacent to the factory.
f) Define clearly the objectives to be accomplished through costing system.
g) Decide about the structures of cost account.
h) Determine the bases on which the difference overhead expenses are to be allocated
apportion and absorbed.
i) Decide about the organization of cost office.
j) Define the relationship of cost office with other offices and departments.
This way ,decisions are to be taken about each and every aspect of costing practices, polices,
procedures, etc., and necessary arrangements are to be made to recruit and/ or train the people
to take up the new assignment, and to get the necessary forms, records, etc., ready for use.
Even after the installation of the system, it is necessary to supervise the working of the system
for further improvements.
Difficulties in Installing Costing System: While installing a costing system, cost accountant
is expected to face any a number of problems and difficulties. A clear understanding of these
problems is prerequisite to take appropriate measures to overcome the same and for the smooth
installation of costing system. A few practical difficulties, other than the technical costing
problems, are identified below together with the suggestions to overcome the same.
a) Lack of Support from the Top Management and Other Departmental Heads: In
many a number of organizations, decisions to install costing system is taken by the
managing director or by some other authority without understanding the benefit of the
system. This creates an impression in the minds of the departmental heads that the
system is a device to check their activities and power, and therefore, they may feel it as
a direct interference in their activities. Consequently, they may not extend full
cooperation and support to the cost accountant which is a prerequisite for the purpose
of installing and operating costing system. In order to overcome this difficulty, it is
necessary on the part of the cost accountant to educate all those who resist the
installation of costing system about the benefits, advantages, etc. He has to convince
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
, lOMoARcPSD|25448604
them that the system is for their benefit and for the system is for their benefit and for
the benefit of the whole organization.
b) Resistance from the Existing Financial Accounting Staff: Whenever the initiatives
are taken to install a new system, there will be a strong protest and resistance from the
staff. Because, they may feel that the installation of costing system may result in the
reduction in their importance, position and career improvement opportunities in their
organization. The cost accountant should, therefore, convince them that the new system
is in no way a substitute to the financial accounting and therefore, there is no threat to
their jobs, promotional opportunities, etc. Further, he has to educate them to the effect
that the new costing system works as a supplement to their financial accounting system
and it will create new opportunities to them.
c) Non Cooperation from the Supervisory Staff: The foremen, supervisors and their
staff may not extend their support and cooperation which is one of the prerequisites for
the successful installation and operation of the system. Because, provision of accurate
information is absolutely essential for successful installation and implement of the
system. Their non-cooperation and resistance may be on the ground that the installation
of costing system may result in additional paper work for them. In order to overcome
this difficulty, it is necessary to educate the supervisory staff by explaining the benefits
of the system and the role they have to play. This proper education is necessary to win
their confidence to the system.
d) Shortage of Qualified Trained Staff: At the initial stage of installation, normally there
will be a shortage of qualified and trained staff. But, this can be overcome by taking
steps to train the existing staff and recruiting additional qualified staff.
Elements of Cost
A cost is composed of three elements, i.e., material, labour and expenses. Each of these
elements may be direct or indirect.
Material Cost
According to CIMA UK, material cost is “the cost of commodities supplied to an undertaking”.
Materials may be direct or indirect.
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
