Challenges in installing effective cost accounting system

15/10/2022 0 By indiafreenotes

The implementation of a cost accounting system is an important step for a growing small business. Implementation begins with identification of the correct costing system for the business, moves on to deployment of the system and finishes with post-deployment support to train employees on how to use the system effectively. Best practices in cost-system implementation focus on all three parts of the implementation process.

(i) Management Apathy:

If management is not really convinced of the advantages of the costing system or if it has somehow been made to accept the system against its will, it will merely tolerate it and not encourage it properly. This will lead others also to withhold their cooperation and, therefore, the system may never operate effectively. The reports may all be correct and prompt but probably no one will look at them.

(ii) Hostility from Line Staff:

Line staff people often believe that firstly they know how to run their business and, therefore, they do not need anyone to tell them what information they need and, secondly, that they cannot waste their time in “form filling”. They may also be afraid that proper information will expose some of their mistakes or that the new system will make them less useful than before in the eyes of the management. There is a tendency to resent anything new unless it is patently to one’s advantage.

(iii) Structure of Authority:

The cost accounting system may be based on formal authority structure whereas in reality the structure may be quite different. If, for example, trade union leaders have a great deal of influence on the various decisions, the system may run into difficulties it is not likely that the organisation chart will show the authority of the union leaders.

(iv) Changed Circumstances:

Business often undergoes rapid changes the market may change and the production process may change; management ideas change also. If the costing system is not adapted to the changed circumstances, it will cease to be effective. For example, if a cotton textile mill is converted into a mill producing man-made fibres, the Cost Accounting system must also be suitably changed.

(v) Indifference:

Often a part of the system breaks down; if it is not quickly set right, it will affect the whole system. For example, if issues of material are not properly watched and kept under control, the whole materials control system may break down. Also there may be delay in the flow of information and report may be delayed. If this is not corrected the whole decision-making and control system may be vitiated. The same will be the result if there are serious errors in report. It is, therefore, necessary that someone should watch the actual operation of the system continuously and carefully.

(vi) Low Status of Cost Accountant:

The cost accountant will often have to collect and furnish information which may not be liked by someone. If the cost accountant occupies a very junior position, he may not be able to do his work without fear or favour and, therefore, the information supplied by him may not lead to the correct decision. It is essential that the cost accountant should be a high ranking official, having direct access to the top management. He must also be assisted by a properly trained and adequate staff.

(vii) Lack of Clarity about Priorities and Objectives:

If the Cost Accounting staff is not clear about the end uses to which costing information will be put, they may not go about their task in the correct manner; they may even send the wrong sort of or inadequate information. Because of all these difficulties, it is necessary to proceed slowly, taking everyone along. An educative process for all concerned is essential to see that the costing system is accepted and operated sincerely.