Costing System and it’s Usefulness
Kashyap Pd. Marahatta
BUS 535 Managerial Accounting
Professor: Dr. Kaveh Shamsa
Westcliff University
11/23/2016
Abstract
This paper will discuss about the different costing system that a company can adopt. It will also try to shed light into the similarities and differences among the job order costing and process costing. It will try to find out which costing a service firm such as an advertising agency would use. Then it will focus on how both the systems provide decision-making information for a company. After that this paper will also talk about activity based costing, provide examples where activity based costing is preferred over traditional costing. Then, it will explain how this costing is useful in decision making.
Costing System and it’s usefulness
For any firm, it is very much critical and crucial for the accurate estimation of product costs in order for the operations to be profitable. It is very much essential for companies to know which products would actually generate profit for them which can only be found out by correct cost estimation. For such cost estimation companies adopt certain system basically known as a costing system or product system or a cost accounting system. Costing system (cost accounting system), can simply be understood as a system that can be adopted or used by a company or a firm for estimating the cost of their products (goods or services) so as to analyze profitability, valuation of
According to Epstein and Buhovac, (2014), costing system is a process designed to monitor the costs incurred in a certain business. Costing systems are meant to advise the management on how to choose the most appropriate course of action with cost efficiency and capability. According to Cardinaels and Labro (2009) costing system provides detailed cost information needed by management needs to control current operations with the aim of improving the future. Below are some of the costing systems that are common to many organizations (Epstein & Buhovac, 2014).
The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise.
Actual costing is rarely used because managers can’t wait until the end of the year to obtain product costs. Information about product costs is needed as the year goes for planning, control, and decision making.
This paper provides a brief presentation of Activity-Based Costing methodology, how is used as well as its short comings.
In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price of the product. Having this information, the profit per unit, is very beneficial for a company to know which products they should produce more heavily, or which ones to eliminate. I want to discuss two costing methods that are beneficial to a
Costing systems are components of a broader accounting system used by a given company or organization. Their main function is to keep a focused eye on expenditures made by the company in question. Synthesis of Existing Cost Models to Meet System of System Needs, p.86. G.G. Toy's production process for dolls started with the basic raw materials needed for the bodies of the dolls, wool and things for the hair and clothing and all of these things were consist in production initially. Then, in its modern Chicago manufacturing facility, the company machine-molded the vinyl and resin into doll bodies and even had varies different styles and designs for the
Session 1 Date September-4 Topic Introduction, overview, group assignment, product costing systems (concepts and design) Process costing systems Managing and allocating support service costs Inventory decisions Strategic issues in investment decision Managing quality and time to create value Midterm Exam Cost management and strategy The nature of management control systems Understanding strategy Strategy, balanced score card, incentive systems Organizational design & responsibility accounting Case presentation Case presentation Case presentation Case written report is due at the beginning of session 13 Final exam Chapter 1 (H) Chapter 1 (A) Chapter 2 (A) Chapter 20 (H) Chapter 18 (H) Reading Chapter 2 (H)
Narong, D. K. (2009). Activity-Based Costing and Management Solutions to Traditional Shortcomings of Cost Accounting. Cost Engineering, 51(8), 11-22.
Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).
Our treatment of job costing and process costing is as brief as we can make it and still get the general points across. Students do need to understand the general idea of these cost accumulation procedures; otherwise they are unable to visualize how costs are actually collected. The details, however, are appropriately left for an advanced course. The principal pedagogical problem here is how to get across the idea of equivalent production in process costing.
Determining the unit cost is a quick way to check if companies are efficient in producing their products. The cost information system plays an important role in every organisation within the decision-making process. An important task of management is to ensure the control over operations, processes, activity sectors, and not ultimately on costs.
The key issue presented in front of the management is the possible steps to be taken by the management in order to avoid such losses. Critical Thought The issue addressed by the accounting system of Dakota office products invites our attention to the premise of Activity Based costing methodology. We are certain about the fact that the accounting and reporting system at Dakota Office Product is inappropriate and is leading to the company making wrong decision ultimately leading to losses. This was apparent from the record where the company was able to increase its sales without a corresponding increase in the profits for that particular year. Activity based costing system is an approach which seeks to allocate the overhead cost to the products on a scientific and realistic basis. The existing system of allocating cost at Dakota Office products were inadequate in so much so that it was following an unreasonable basis for allocating the cost, which were known and visible, such as the desktop delivery cost. The existing system was suffering from oversight of some of the expenses. ABC costing system seeks to overcome the problem of oversight and make a more reasonable allocation of the costs. The distinctive feature of this method is the fact that the method can provide useful insights to the management as to the activities which are leading to the cost by
Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The
After reading this paper one should be able to: obtain a general understanding of job costing, the components involved, understand evaluation and implementation, benefits provided by job costing, and learn the processes via analysis of job costing cases.
The information provided by the cost management systems, allows management accountants and managers with valuable data to help with their decision making. In addition to these systems, implementing other analytical tools will also help with