Many companies, particularly those in the manufacturing industry mostly produce products following

900 WordsApr 23, 20194 Pages
Many companies, particularly those in the manufacturing industry mostly produce products following a forecasting on demand. Though from time to time it can make them on receiving orders from its clients. The items that are made and the work which is completed in accordance with the order of a customers is called job. Hence, the costing process intended to establish the cost of a job is extremely important. Job order costing therefore is the costing system which establishes the cost of the jobs obtained from a client (Walther, n.d.). In this way, job order costing approximations the costs of producing products in line with clients' instructions. Cost Concepts Cost is the sum of expenses whether estimated or actual attributable to a…show more content…
A good example of fixed cost is rent. Consider that St. John hospital rents a specific equipment for $5,500 every month which carries out tests on blood samples for cancer growth. The $5,500 monthly cost shall be gained irrespective of the total number of tests completed throughout the month. A few costs are fixed completely, most will change if activity changes enough (Bragg, 2012). Assuming that the capacity of the cancer diagnostic machine at the St. Johns hospital is 1,600 tests each month. Should the hospital need to conduct more than 1600 tests within a month, then it is necessary for them to rent an extra machine, this would trigger a rise on the fixed costs. Direct Costs Direct cost can conveniently and easily be linked to a stipulated cost item. The conception of direct cost spreads past direct labor and direct materials. For instance, if Nike is allocating costs to its many national and regional sales divisions, then the pay of the manager in the Abu Dhabi office will be a direct cost of that office. Variable Cost This cost is parallel to the manufacturing processes or operation. While the volume of production on a business increases, the variable expenses will also increase. The variable costs change in co-relation to the operations of a business (Bragg, 2012). Indirect Costs An indirect cost one that cannot be clearly and appropriately be drawn to an itemized cost item (Walther, n.d.). Let us say, Johnny Soup factory can make several types of cooked

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