A cost accountancy system (also called product costing device or costing system) is a structure used by firms to estimate the expense of their commodities for benefit analysis, list valuation and cost control.
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Estimating the accurate expense of assets is an important for rewarding operations. A firm must understand which products are profitable and i m sorry ones space not, and also this have the right to be ascertained only when it has estimated the correct cost of the product. Further, a product costing device helps in estimating the closing value of materials inventory, work-in-progress and also finished products inventory for the objective of financial explain preparation.
There space two main cost accountancy systems: the task order costing and also the process costing.
Job order costing is a cost audit system the accumulates manufacturing prices separately for each job. The is proper for firms that are engaged in manufacturing of unique products and special orders. Because that example, that is the costing bookkeeping system most suitable for an event management company, a niche furniture producer, a producer of very high price air monitoring system, etc.
Process costing is a cost accountancy system that accumulates manufacturing prices separately because that each process. The is appropriate for products whose production is a process involving different departments and costs circulation from one room to another. Because that example, that is the cost audit system used by oil refineries, chemical producers, etc.
There are instances when a firm provides a combination of functions of both job-order costing and procedure costing, in what is referred to as hybrid cost accountancy system.
In a cost accounting system, cost allocation is carried out based on either classic costing system or activity-based costing system.
Traditional costing system calculates a single overhead rate and applies it come each task or in each department.
Activity-based costing ~ above the various other hand, involves calculation of activity rate and application of overhead prices to products based upon their respective activity usage.
Based on even if it is the fixed production overheads are charged to products or not, cost audit systems have two variations: change costing and also absorption costing. Variable costing allocates just variable manufacturing overheads come inventories, while absorption costing allocates both variable and also fixed manufacturing overheads to products. Variable costing calculates contribution margin, while absorption costing calculates the relevant gross profit.
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Still additional refinement to costing accountancy systems incorporate JIT-costing, back-flush costing.