COST ACCOUNTING Introduction

Cost Accounting - measuring, recording, and reporting of product costs. All data from starting about the total cost or cost each unit is being used to forecast future cost.

Objectives of Cost Accounting

  • Cost determination - to determine the costs of manufacturing (materials, labor, and overhead) on a specific job, to the department creating the products and the cost of the product processes.
  • Cost Control - to have a lesser cost without changing the target quality of the product.
  • Cost Analysis - this is the measuring, recording, and reporting the costs and being observe to know the updates of the cost to help the owners/managers to analyze its cost and to execute the cost determination and the cost control.
Methods

  • Cost accumulation system - accumulated cost per what detail is needed.
Kinds of cost accumulation system
  1. Job order costing - small quantities or distinct batches of identifiable, unique products or services. Each cost are assign to each job or to each batch of goods.
  2. Process Costing - series of connected manufacturing processes or departments produce a large volume of homogeneous products. It accumulates product-related costs for a period of time instead of assigning costs to specific products or job orders.
  • Valuation method - how product costs will be measured.

Differences between Job order and process costing

  • In job order costing, unique jobs are worked on during a time period while in process costing, homogeneous units pass through a series of similar processes.
  • In job order costing, costs are accumulated by job or lot or order while in process costing, costs are accumulated by department.
  • In job order costing, unit costs are determined by dividing the total costs on the job cost sheet by the number of units in the job t the completion of the job or lot or order while in process costing, unit costs are computed by dividing the department's cost by the equivalent production at the end of the month.
  • In job order costing, the job sheet provides the details for the Work in Process account while in process costing, the Cost of Production Report provides the details for the Work in Process for account for each department.

Valuation Methods

  • Actual costing - uses actual materials, labor and overhead.
  • Normal costing - uses actual materials and labor but applied overhead using a predetermined rate.
  • Standard cost system - unit norms or standards are developed for direct material, direct labor, quantities and/or costs. Overhead is applied to production using a predetermined rate that is considered the standard.
Accounts Peculiar to Cost Accounting Systems - Normal Costing

Materials/Stores


Factory Payroll


Factory Overhead Control


Work in Process Control

Finished Goods

Cost of Goods Sold



Comments

Popular posts from this blog

LAW OF OBLIGATIONS

REVIEW OF THE ACCOUNTING CYCLE