Costing Systems in Manufacturing
Companies in the manufacturing sector are increasingly using cost models to more accurately record the actual cost of a product to reduce manufacturing expenses relative to the competition. Two primary costing systems emerge, one for a distinct manufacturing technique. To be more precise, the job costing system isolates discrete jobs, or manufacturing units, to which all expenses are assigned (Buys & Nel, 2021).
In contrast, a process costing system is used when manufacturing many identical items and wants to get an overall cost per unit (Buys & Nel, 2021). For management to make appropriate choices in a timely fashion, it is essential to have a well-thought-out and implemented cost bookkeeping system. The budgetary control system should also be able to assign costs to individual products or divisions. Since the same prices can be assigned to various purposes, accurate cost data coding is essential in data gathering.
The Role and Types of Cost Accounting Systems
Throughout the production process, the accounting system for costs offers reliable data that can be used as a foundation for product assessments and establishing a price range. Its end goal is to generate numbers that can be used for inventory valuation and product costing. Control reports and output cost reports are the two most common types of reports generated by a cost accounting system (Lubis et al., 2022). A business can handle its financial data manually (using paper records) or digitally. More data and output information, quicker processing, and better integration with other cycle components in the accounting information system all contribute to a digital production cycle process that is superior to its analog counterpart.
Examples of Combined, Process, and Job Order Costing Systems
Combined System
For example, a Medicare provider uses a combined job and process costing system. This method, used in tandem with the process pricing system, assigns a monetary value to routine medical procedures such as standardized tests, imaging, and MRI scans (Abualhaija, 2020). However, job order costing accounts are applied for the time and materials used to treat each patient (Abualhaija, 2020). Thanks to pricing methods, the cost of care can be accurately calculated in this instance, providing a solid foundation for healthcare expenditures. The combined approach can be readily transferred to new contexts and organizations of varying sizes.
Process Costing
In addition to producing and supplying bricks, Florida Silica Sand Co. is an example of a company that uses a process pricing method. Companies that mass-produce similar products, such as bricks, slabs, and tiles, often adopt the process cost system. Since process costing systems keep tabs on expenses in each processing area, they are invaluable for material makers.
Job Order Costing
The job order budgeting method is useful for tracking customer financial affairs in white-collar industries like accounting and corporate finance. For instance, Deloitte, an accounting company in the United States, treats each customer as a separate job. Job order cost papers are filled out daily to document how much time is spent on each client’s requirements and how the firm’s accountants manage those needs.
One more example is the major construction firm STO Building Group. Depending on the wishes of the client, many construction employees create one-of-a-kind structures. These professionals frequently provide construction expense estimates. They will prepare an estimate on a work cost sheet and then give it to the manager or proprietor. The construction firm will use the authorized work order sheet to monitor their progress and expenses to ensure it remains within the fixed budget.
References
Abualhaija, M. (2020). Determining the cost of care for U.S. healthcare providers: A hybrid approach. Journal of Medical Research and Health Sciences, 3(6). Web.
Buys, P., & Nel, H. (2021). Development of an operation-centric costing system: The case of a water-recycling fabrication facility. In Designing Cost Management Systems to Support Business Decision-Making (pp. 11–39). Springer. Web.
Lubis, C., Lubis, N., & Muda, I. (2022). The production cycle in the pharmaceutical sub-sector : Traditional vs. digital accounting information systems era and implementation of internal control procedures that enable cost savings in dealing with threats in the cycle. Journal of Pharmaceutical Negative Results, 13(7), 3522–3532. Web.