Costing Accounting Systems- Managerial Accounting PDF

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a great assignment answer for costing accounting systems in Managerial accounting. Organizations need costing accounting systems to be detailes=d...

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Costing Accounting Systems Division of Business Administration, University of the People BUS 5110: Managerial Accounting Dr Larry Lettau

A cost accounting system is used record manufacturing activities and monitor the cost incurred by a business.

Process costing system: A process costing system is used when identical units are mass produced. This also means that the cost of each product manufactured is assumed to be the same as the other cost of every other product. An example of industries that use the process costing system are petroleum industries, food production. For example, how will you know the cost to manufacture a liter of fuel when thousands of liters of the same fuel are manufactured in a refinery? The cost system used in this scenario is the process costing. Process costing also assigns production costs to departments (Heisinger & Hoyle)

For industries that use process costing system, the nature of the processes makes it hard to identify the units of direct labor and material with the final output. (Walther & Skousen, C.J. 2009). The cost system of a company is dependent on the efficiency of tracing the cost of the job to the production department or batch.

Job Order Costing Method: A Job order costing method is used to determine the cost of manufacturing each product. It takes place when customers order a batch of products. The cost system is used to determine the price of each product. The product process is determined by the

number of orders received. In this cost system, products are assigned to individual jobs. Example of companies that use this system are services industries like Furniture Making, Painting, e.t.c

Activity Based Costing: Activity based costing assigns overhead and direct costs to related products and services. This accounting system assigns costs to every activity involved in production. Activity based costing charges a product with the cost of capacity utilized (Walther, L. M. & Skousen 2009). Although an activity-based cost system gives accurate product cost details, it can be difficult to implement.

Differences between Process costing, Job order costing and Activity based costing

Job Order Costing

Process Costing

Activity Based Costing

Costing is based on order

Costing is based on the

Costing is based on the

consistency of the process

activities involved

Product costs are assigned to

Product costs are assigned to

Product costs are assigned to

jobs

department or processes

activities

Low Production volume

High production volume

Both low and high production value

Each of the costing systems mentioned above has its limitations and advantages, however each are used by different industries. After carefully analyzing the different cost systems, the process costing is the most suitable for Wet Suit World. The reason for the choice of cost system is

because the processes are the same, and production volume is high. The materials used is the same for all suits and they also undergo the same production process.

References



Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. https://library.ku.ac.ke/wpcontent/downloads/2011/08/Bookboon/Accounting/managerial-andcost-accounting.pdf



Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://2012books.lardbucket.org/books/accounting-formanagers/index.html...