Costi Accounting Systems

| Cost Accounting Systems |

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study objective 1 |

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Explain the characteristics and purposes of cost accounting. |

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Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, companies determine both the total cost and the unit cost of each product. The accuracy of the product cost information produced by the cost accounting system is critical to the success of the company. Companies use this information to determine which products to produce, what price to charge, and the amounts to produce. Accurate product cost information is also vital for effective evaluation of employee performance.A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system. Such a system provides immediate, up-to-date information on the cost of a product.There are two basic types of cost accounting systems: (1) a job order cost system and (2) a process cost system. Although cost accounting systems differ widely from company to company, most involve one of these two traditional product costing systems.Job Order Cost SystemUnder a job order cost system, the company assigns costs to each job or to each batch of goods. An example of a job is the manufacture of a mainframe computer by IBM, the production of a movie by Disney, or the making of a fire truck by Western States. An example of a batch is the printing of 225 wedding invitations by a local print shop, or the printing of a weekly issue of Fortune magazine by a hi-tech printer such as Quad Graphics. Companies may complete jobs or batches to fill a specific customer order or to replenish inventory.An important feature of job order costing is that each job or batch has its own distinguishing characteristics. For example, each house is custom built, each...