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CMA Intermediate · Cost Accounting · Introduction to Cost Accounting

While installing a costing system in a newly set up engineering company in Pune, which of the following is the factor that should be considered first, before choosing the costing method or the forms to be used?

The nature of the business, its products and its manufacturing process should be considered first, because it determines the costing method, cost centres and records suited to the firm. Staffing, stationery and meeting schedules are secondary details decided after the basic design of the costing system is fixed.

  1. AThe nature of the business, its products and its manufacturing processCorrect
  2. BThe number of clerks available in the accounts department
  3. CThe colour coding of the stationery for cost forms
  4. DThe frequency at which the board wishes to hold meetings

Explanation

A costing system must be tailored to the business. The nature of the products and process decides whether job, batch, process or another method suits, and this in turn decides the forms, records and cost centres. The other options are minor administrative matters that follow after the system design is settled.

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