Characteristics of an Ideal System of Cost Accounting

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 07, 2023

A high-quality cost accounting system in one that achieves the objectives of costing in the best possible way and brings benefits to the business.

An ideal system of costing should possess the following characteristics:

1. Simplicity

The costing system should be simple to operate and easy to understand. The facts, figures, and other information revealed by cost accounts should be presented in a way that makes them easy to grasp.

As such, the needless elaboration of costing records should be avoided.

2. Suitability to the Business

The costing system should be devised so as to suit the conditions, requirements, nature, and size of the business.

A costing system that serves the enterprise's purposes and supplies necessary information for running the business is an ideal system for that business.

3. Economy

For the costing system to become a profitable investment for the business, the cost of installing and operating the system must be within the organization's financial capacity.

4. Elasticity

The costing system should be elastic and capable of adapting to changing conditions. As such, it must not be rigid.

It should, in particular, be capable of handling a large volume of work and also dealing with changes in the nature of business.

5. Accuracy

The costing system should ensure the accuracy of the records that are maintained.

If the costing records maintained are not correct or accurate, the results or conclusions drawn from them are bound to be inaccurate and misleading.

6. Comparability

Costing records must be presented in a standardized form, enabling a comparative study of costing results across different periods.

7. Promptness

An ideal system of costing is one in which information necessary for its functioning are promptly, easily, and punctually available.

Promptness can be ensured if arrangements are made for the timely supply of records from different business units (e.g., records concerning materials, labor, or overheads) to the costing office.

Once the costing office receives the information, the obtained data should also be analyzed and recorded in a timely way to ensure promptness.

8. Reconciliation of Results

The costing system should be maintained so as to make the task of reconciling cost accounts with financial accounts easy and simple.

This reconciliation is essential for checking the accuracy of cost accounts and also for measuring the efficiency of the costing system.

Characteristics of an Ideal System of Cost Accounting FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.