A cost accountancy system (also called product costing device or costing system) is a structure used by that company to calculation the expense of their assets for benefit analysis, inventory valuation and cost control.
You are watching: The two basic types of cost accounting systems are:
Estimating the accurate cost of assets is critical for profitable operations. A for sure must understand which commodities are lucrative and i beg your pardon ones room not, and also this can be ascertained only as soon as it has approximated the correct expense of the product. Further, a product costing mechanism helps in estimating the closing worth of products inventory, work-in-progress and finished goods inventory because that the function of financial explain preparation.
There room two key cost bookkeeping systems: the task order costing and also the process costing.
Job stimulate costing is a cost accounting system the accumulates manufacturing prices separately for each job. The is suitable for firms the are involved in manufacturing of unique products and also special orders. For example, that is the costing bookkeeping system most ideal for an occasion management company, a niche furniture producer, a producer of very high expense air security system, etc.
Process costing is a cost accountancy system the accumulates manufacturing expenses separately for each process. That is suitable for products whose production is a procedure involving various departments and costs circulation from one department to another. For example, it is the cost accounting system provided by oil refineries, chemistry producers, etc.
There are instances when a firm uses a combination of features of both job-order costing and procedure costing, in what is referred to as hybrid cost accounting system.
In a cost accountancy system, price allocation is lugged out based upon either timeless costing system or activity-based costing system.
Traditional costing system calculates a single overhead rate and applies it to each task or in each department.
Activity-based costing ~ above the various other hand, requires calculation of activity rate and also application the overhead prices to products based upon their respective activity usage.
Based on even if it is the fixed production overheads are charged to assets or not, cost bookkeeping systems have actually two variations: change costing and also absorption costing. Change costing allocates only variable manufacturing overheads to inventories, while absorption costing allocates both variable and also fixed production overheads to products. Variable costing calculates donation margin, while absorb costing calculates the appropriate gross profit.
See more: Which Of The Following Sentences Is Not An Example Of Bacon’S Parallel Structure?
Still more refinement to costing accounting systems encompass JIT-costing, back-flush costing.