Q.What steps should be kept in mind while installing a costing system in a manufacturing concern?

Setting up a costing system for the first time is a deliberate, planned exercise rather than something introduced casually.

Before installing a costing system, the organisation and its production process must first be studied thoroughly, and the objectives and scope of the system clearly defined. A costing method suited to the nature of the business must be chosen, along with suitable cost centres and cost units. The desired accuracy must be balanced against the cost of the system, records should be kept simple and integrated with financial accounts, and the cooperation of staff and management must be secured. F …

Installing a costing system in a manufacturing concern that does not already have one calls for careful planning. The commonly recommended steps are:

1. Study the organisation thoroughly — its size, product/service, production process, and existing layout and structure, before designing anything.
2. Define the objectives and scope clearly — decide precisely what the system should achieve (cost ascertainment only, or also control, pricing support, and decision-making) and the level of detail needed.
3. Choose a costing method suited to the business — for instance, a method organised around individual jobs for a business that manufactures to customer order, or one organised around continuous processes for a business with continuous, homogeneous output.
4. Design suitable cost centres and cost units so that costs can be meaningfully collected and expressed for that particular organisation.
5. Balance accuracy against cost — decide the degree of detail the system should aim for, since a more elaborate system costs more to run, and it should never cost more than the benefit it yields.
6. Keep forms and records simple, and integrate them as far as possible with the existing financial accounting records, avoiding duplicate recording of the same transaction.
7. Secure the cooperation of staff and management, since a system imposed without buy-in from the people who must operate and use it tends to be resented and poorly maintained. …

Students sometimes answer this question by listing the ADVANTAGES of cost accounting instead of the actual STEPS/PROCESS of installing a system — keep the answer focused on the practical sequence of setting the system up (study, define scope, choose method, design centres/unit …