A cost accounting system is the total methods and techniques utilized by businesses allowing them to track resources used in creation and circulation of services or goods to consumers. These methods and techniques are being used by the management in order to judge and reward staff performance, by employees in order to manage recourses efficiently while the cost accounting system is also used for exterior reporting requirements meaning balance linens and income statements. The cost accounting system is usually made to meet particular needs of individual companies, because of this there are three main systems businesses apply according to their needs.
Job Order Costing is an expense system used to accumulate costs of jobs also known as batches. Job order costing is employed when individual production centres or departments work on a number of products somewhat than one ruler of a product throughout a specific time frame. Primary costs and manufacturer overhead costs are the two categories of production costs checked with this technique.
Process costing is a kind of costing system used for creation of small identical, low-cost items. Process charging averages the costs and can't be directly traced to specific products.
Activity based priced at (ABC) was created to assign costs to activities. This technique has become popular as a result of simple fact that the difficulty of businesses keeps growing and so does indeed their need to assign ever more large indirect costs to the correct team or activity. ABC is the process where costing is assigned predicated on the reason and effect marriage between costs and activities that drive costs.
What are major goals of an cost accounting system in a hospitality establishment?
Within hospitality establishments cost accounting systems help successfully achieve the next management goals:
- Measuring the various needs and generated profits of departments
- Monitoring and managing the progress of each department
- Department related data collected is used to judge costs and make proper adjustments and corrections in operating procedures
What are the major objectives of a cost accounting system system in a processing company?
In manufacturing and service companies cost accounting systems help achieve the next management objectives. They offer the professionals with helpful information regarding planning, cost control strategies and determining product production costs. In most cases processing companies also use a complete job cost sheet which is made up of Cost Conclusion and Product Cost information since developing costs are not immediately noted as current period expenses. These information include total and costs per product for:
- Direct materials, which will be the raw materials used in creation which costs are immediately traceable throughout the merchandise production process.
- Direct labour, which will be the salary and other pay spin costs of employees whose efforts are straight traceable throughout the merchandise developing process.
- Manufacturing overhead, is the category including all other manufacturing costs like resources aside for all these ones.
What will be the techniques in job order costing, process costing and activity based costing.
Job order charging process is a particular set of occasions that will usually happen with each job. Generally the process is really as uses: an order (or deal order) is received for the batch of products, a creation order is issued from the sales order materials and labour are purchased and tracked for the group of products, manufacturing over head is assigned to the job by using a predetermined rate (usually per labour or per machine hour). In fact manufacturing overhead won't affect the task in process bill; instead it is altered to a control account. Direct labour and materials are recharged by the accountant to the work in process accounts using the genuine quantity obtained. These quantities are all tracked by using a job costing sheet which will be already a computerized ledger and use used for each job. Spoilage which surpasses expected levels based on the job at hand is considered an interval cost which is reclassified from work in process bill into another account so that it can be attended to by the management.
Process costing techniques follow specific types of procedures and while exact procedures may differ between different companies and businesses, but they generally follow these steps.
While other types of costing are initiated whenever a sales order is granted, a sales order is not needed for process costing as it is a continuing process.
The work in process accounts are segregated departments and are named in line with the department they think about e. g. Work in process- F&B office.
The first section in the creation process makes the first access in to the work in process profile, generally for the recycleables.
While the products move from division to division entries are created to each work in process bill of each team.
Direct labour costs are noted at each period.
Actual overhead costs are documented; no contra-account in needed because there is no over- or under-applied over head because of the actual costs being applied.
Indirect costs are applied to the overhead bill in actual sums.
Activity founded costing steps can become more complicated to set up and operate than other priced at systems. The activity based costing steps are:
Only if the cost driver can't be recognized a cost can be designated by using an allocative basis.
Related cost swimming pools are assigned with an overhead rate on costs drivers.
Cost pools are being used to assign costs; the basis depends on the business enterprise and industry.
Costs can be given to items, batches or products.
These swimming pools can be put together to check out facilities, divisions, or other degrees of cost classifications.
Costs may then be evaluated to be able to observe how and where these are developing, knowing this the management can discern what cists are controllable and exactly how they arise.
Which priced at methods (job order charging, process costing and activity costing) are suitable to the next businesses and why:
Old Home Bakery, Inc (a bakery that produces to order): It'll be able to use job order costing because it is suitable for businesses which use orders somewhat than mass development.
Apache Oil and Gas Refinery: Because the products are similar or equivalent the process costing is the correct method the business enterprise should apply. Additionally it is recommended because the business uses an automatic continuous process.
The Sea View Vacation resort Hotel: the hotel is most beneficial recommended to use the work order costing because it offers services and the technique is designed for such businesses.
Willie Wonker's Chocolate Stock: because the business enterprise produces a typical item which items are identical it is best to apply the process priced at method.
Harris and Harris Law Firm: Since this business offers services in the form of legal counselling or legal representation could it be best to use the work order charging which refers to a desired product which might not be similar to some other offered service.
Explain and examine LIFO, FIFO and AVCO techniques.
LIFO stands for last-in first-out what means that recent buys will be stored documented and sold prior to the items that already existed in stock when the purchase was received. LIFO valuation is permitted due to the belief that an ongoing business does not realize an economic earnings only from inflation. When prices are increasing they need to replace the inventory currently being sold with items oh higher prices. It also complements better current cost against current revenue and defers paying fees on phantom income arising specifically from inflation. LIFO is preferred by businesses because it delays a major negative effect of inflation; higher taxes.
FIFO is the mostly used method used by businesses to record the value of inventory. It is appropriate when working numerous different batches of similar products. The method assumes that the next item that will be purchased will be located at the end of the type of to-be-sold components of that kind meaning that which was purchased first will be sold first. In an economy of growing prices (during inflation), it's quite common for new companies to use this method to article the worthiness of merchandise to improve their balance sheet. While the old and cheaper good can be purchased the new and more expensive goods stay as resources in their books, financial record boosted by FIFO also raise the chances a small business must get financing.
AVCO is utilized to establish the value of a listing by calculating the costs of units. Used it offers us the results we want by dividing the total cost of good available for sale with the number of items on the market.
