(a) You have been asked to install a costing system in a manufacturing company. What practical difficulties will you expect and how will you propose…

(a) Practical difficulties in installing a costing system and how to overcome them: The practical difficulties with which one usually confronted with while installing a costing system in a manufacturing company are as follows: Lack of top management support: Installation of a costing system does not receive the adequate support of top management. They consider it as interference in their work. They believe that such a system will involve additional paperwork. They also have a misconception in their minds that the system is meant for keeping a check on their activities. Resistance from cost accounting departmental staff: The staff resists because of fear of losing their jobs and importance after the implementation of the new system. Non-co-operation from user departments: The foremen, supervisor and other staff members may not co-operate in providing requisite data, as this would not only add to their responsibilities but will also increase paper work of the entire team as well. Shortage of trained staff: Since cost accounting system's installation involves specialised work, there may be a shortage of trained staff. To overcome these practical difficulties, necessary steps required are: To sell the idea to top management – To convince them of the utility of the system. Resistance and non-co-operation can be overcome by behavioral approach. To deal with the staff concerned effectively. Proper training should be given to the staff at each level Regular meetings should be held with the cost accounting staff, user departments, staff and top management to clarify their doubts/misgivings. (b) Types of cost in the following cases: Type of costs Interest paid on own capital not involving any cash outflow. Imputed Cost Withdrawing money from bank deposit for the purpose of purchasing new machine for expansion purpose. Opportunity Cost Rent paid for the factory building which is temporarily closed Shut Down Cost Cost associated with the acquisition and conversion of material into finished product. Product Cost (c) Steps involved in the budgetary control technique: There are certain steps involved in the budgetary control technique. They are as follows: Definition of objectives: A budget being a plan for the achievement of certain operational objectives, it is desirable that the same are defined precisely. The objectives should be written out; the areas of control demarcated; and items of revenue and expenditure to be covered by the budget stated. Location of the key (or budget) factor: There is usually one factor (sometimes there may be more than one) which sets a limit to the total activity. Such a factor is known as key factor. For proper budgeting, it must be located and estimated properly. Appointment of controller: Formulation of a budget usually required whole time services of a senior executive known as budget controller; he must be assisted in this work by a Budget Committee, consisting of all the heads of department along with the Managing Director as the Chairman. Budget Manual: Effective budgetary planning relies on the provision of adequate information which are contained in the budget manual. A budget manual is a collection of documents that contains key information for those involved in the planning process. Budget period: The period covered by a budget is known as budget period. The Budget Committee determines the length of the budget period suitable for the business. It may be months or quarters or such periods as coincide with period of trading activity. Standard of activity or output: For preparing budgets for the future, past statistics cannot be completely relied upon, for the past usually represents a combination of good and bad factors. Therefore, though results of the past should be studied but these should only be applied when there is a likelihood of similar conditions repeating in the future. (d) Example(s) of the cost driver for the following cost pools: Cost Pool Cost Driver Quality Control Number of Inspections Product Units Produced Research and Development Number of research projects Personnel hours on a project Machine Maintenance Machine Hours Employee Training Costs Number of Training Hours Employees Trained Customer Service Number of service calls Number of products serviced Hours spent on servicing products