Essential elements of a cost accounting system;

              The Essential Elements of a Cost Accounting System
by THOMAS J. CURLEY, JR. Consultant, Management Advisory Services, Chicago Office
Presented before the Management Advisory Services Conference of the Missouri Society of Certified Public Accountants, Saint Louis—October 1965
NEARLY ALL BUSINESSES have some form of a cost accounting system. In order to define the elements of a cost accounting system it is first necessary to define "cost acccounting system." A very rudimentary definition is—a method of keeping track of costs.
The type of system can range from a simple manually operated one to one that is highly complex, employing EDP. Whether it be simple OR highly complex, the system, in order to be effective, has to meet the needs of management. Some management people make rather limited use of their cost accounting system and only require that costs be used in valuation of inventories and determination of income. Others, and these are becoming more numerous, use their cost accounting system as a control in their business operations.
The word control implies some form of plan against which a com­parison
is made. Although the plan is a very necessary part, the empha­sis
in this presentation is on the control aspect of the accounting system. Control evolves from the ability to relate deviations from the plan directly to the source and cause.
There are different basic kinds of cost accounting systems that may be used, depending on the particular operation. The two that are based on historical information are Job Order Cost and Process Cost. These are after-the-fact cost systems. The third system is Standard Cost, which is based on a predetermined cost. The standard should represent a cost that can be attained under normal operating conditions.
Standards can be developed for both Job Order Cost and Process Cost and incorporated in these systems. In some Job Order Cost sys­tems,
those where there are constantly changing operations, it may not be practical to develop standards, since by the time the standards are calculated the operation is finished. However, in many Job Order sys­tems
there are a large number of routine operations and in most Process Cost systems there are sufficient amounts of repetitive operations to warrant the establishment of standards.
For purposes of this presentation, the term cost accounting system will relate to manufacturing cost and not to distribution cost or adminis­trative
cost.
If we view the cost accounting system as a part of the total man-
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