Cost Department And Its Relationship With Other Departments

Cost Department And Its Relationship With Other Departments

In the organization chart, the cost department occupies a very important position. The cost department is responsible

• For keeping records connected with material, labour and expenses,
• For analyzing all costs of manufacturing, marketing and administration, and
• For issuing control reports and data for decision making to the executives, department heads, section heads and foremen. When management is provided with useful reports, they assist in controlling and improving cost and operations. Such information data are, again, used for making new decisions.

The effectiveness of the control of cost depends upon proper communication through control reports from the cost accountant to the various levels of operating management. Accounting and control reports are directed to these levels of management, i.e. top management, middle management and lower level or shop floor level of management. Each management level requires data for deciding and solving various problems. The cost accountant must devise a cost system into which data are marshalled to fit the numerous problems confronting management. The cost department is intimately connected with the other departments in the organization. Their relationship can be briefly established as follows:–

• Manufacturing departments control the scheduling, manufacturing and inspection of each job or processed products to their finished stage in terms of efficiency norms established. Costs incurred at each stage are measured and compared with the norms.
• Production planning, research and design department involve cost department for cost estimates needed for each type of material, labour and machine process before a decision can be reached in accepting or rejecting a design.
• Personnel department is interested to maintaining employee cost up-to-date. The wage rate and methods of remuneration agreed with the employees form the basis for computing payroll. Cost department provides all data.
• Marketing department needs a good product at a competitive price. While cost cannot determine price, it can influence fixation of price. Besides, accurate cost data help sales manager distinguish profitable with non-profitable products and compare cost of marketing against sales volume.
• Public relation department establishes good relations with the public in general and customers, creditors, shareholders, and employees in particular. The cost department provides information concerning price, cost, etc.
• Legal department finds cost department helpful in keeping many affairs of the company in conformity with the law, specially excise, customs, sales tax and other legislation regarding maintenance of accounts and cost records.
• The finance department relies on the cost department for accounting, valuation of inventory, cash flow statements, C.A.S. data for banks, etc. Where finance department is composed of general accounting and cost accounting, besides taxation and funds management departments, it is usual to consider cost accounting department providing unit cost of goods manufactured and sold to general accounting department.

 

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