Fundamentals of Cost Accounting Information System

Fundamentals of cost accounting information system is primary requisite for costing department.

The construction of a cost accounting information system requires a thorough understanding of Fundamentals of cost accounting information system which are :

(1) the organizational structure of the company,

(2) the manufacturing procedure or processes, and

(3) the type of cost information desired and required by all levels of management.

The cost accounting information system with its operating accounts must correspond to the organizational division of authority so that the individual foreman, supervisor, department head, or manager can be held accountable for the costs incurred in his department. The concept of authority and responsibility is closely allied with accountability which recognizes the need for measuring a manager’s discharge of his responsibilities. The organization charts depict the authority and responsibility relationships among managers, superintendents, department heads, and foremen who are responsible for:

  1. Providing detailed information needed by the accounting department in order to install a successful system.
  2. Incurring expenditures for materials, labor, and other costs which the accountant must segregate and report to those in charge.

The system must reflect the manufacturing procedure, processes, shop methods, and the marketing and administrative organization and processes of the particular company for which it is designed. The accountant designing the system must know the type of pay (piece-rate, incentive, day-rate, etc.) ; the method of collecting hours worked ; the control of inventories the costing of tools, dies, jigs, and machinery; and other information related to operations.

A satisfactory system results from a meeting of minds between the accountant and management. The service rendered by the accountant is by prompt presentation of meaningful cost reports and statements to management. The reports indicate the success or failure of a per-established course of action. Deviations from the course, if significant, are of interest to management. The cost control presentation should be made so that management by exception is possible ; that is, it should enable management to take prompt remedial action based on compact information regarding the activities of the various divisions and departments of the company.

While details for analyzing and reporting may be different for different businesses, each accounting information system should be perfected in a manner that will:

  1. Aid in planning the future and controlling the present
  2. Provide a means of costing inventories
  3. Compute the cost of sales
  4. Measure the efficiency of men, materials and machines
  5. Aid in establishing selling prices
  6. Furnish data for various analytical process

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