Characteristics Of An Ideal Costing System

An ideal system of costing is that which achieves the objectives of a costing system and brings all advantages of costing to the business.  The 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.

• Suitability to the business:  A costing system 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 in an ideal system.
• Simplicity:  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 provided by cost accounting must be prescribed in the right time to the right person in order to make it more meaningful.
• Flexibility:  A costing system 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.
• 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 should not be expensive and must be adopted according to the financial capacity of the business.
• Comparability:  The costing system must be such so that it may provide facts and figures necessary to management for evaluating the performance by comparing with the past figures, or figures of other concerns or against the industry as a whole or other department of the same concern.
• 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.
• Uniformity of forms:  All forms and proformas etc. necessary to the system should be uniform in size and quality of paper.  Higher efficiency can be obtained by using colour of the paper to distinguish different forms.
• Efficient system of material control:  There should be an efficient system of stores and stock control as materials usually account for the greater proportion of the total cost.  A good method of pricing material issued to production should be followed.