Costing system
| Costing system |
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Costing system is a scheme easing monitoring costs to the company or organization.
It consists of entry forms, processes, hands and accounts which correlate and report management about incomes, charges and profitability.
All the fields including clients, processes, departments, services, sales areas, researches and development, etc. are included in reporting[1].
Usability
As most of the companies are profit-oriented, controlling expenses is the main part of profitability. Cost estimate and calculation are the base of business plans and evaluating whether incomes will cover charges. All the expenses and costs must be recorded and kept for analysis for further research and planning.
Reports aggregating details of expenses are used for internal purposes. All the data collected and transferred is used mainly for:
- improving operations in order to increase profits,
- finding areas where the costs could be cut in case of a financial difficulties of the company,
- comparing present charges to coffers envisioned,
- controlling expenses of individual areas of the whole business,
- setting realistic strategic and tactical plans of spends.
As per the nature of the process, it does not need to follow general rules stated by law nor controlling organizations. Controlling subject is management of the company. Administration decides on importance and urgency of information received. The report should consist of [2]:
- tally of budget and actual costs,
- yield of different sectors, for example: clients, shops, production lines and sales factor,
- layout of costs on monthly basis for consecutive months.
Cost Calculation
Additionally, to calculate and control costs level accountants collect detailed information regarding expenses and mandating them person. Two most common systems used are:
- Job costing system- it includes charges of raw materials, work and general costs that are correlated and converted into cost per person or a task. It works for one-of-a-kind projects such as unique products and services. It is advanced and specific, but also time-consuming method.
- Process costing system- charges of raw materials, work and general costs are correlated and converted into a cost per the whole production process. Then the expenses are assigned to relevant production factors. This system works for mass production and can be robotized.
In some matters industry applies hybrid cost system, so qualities of both methods are combined and used.
Another well known system is ABC costing method. It has been compiled as per inaccurate assigning costs to factors, products and services and basing mainly on general costs without accurate division but averaging the expenses. This is more complex system of costing and may be hard to use as per whole business[3]
See also:
Footnotes
References
- Balakrishnan R. B., Hansen S., Labro E., (2011). Evaluating Heuristics Used When Designing Product Costing Systems, "Management Science", 1-16.
- Fisher J. G., Krumwiede K., (2012). Product costing systems: Finding the right approach, "Journal of Corporate Accounting & Finance", 43-51.
- Zhang Y. F., Isa C. R., (2010). Factors Influencing Activity-Based Costing Success: A Review, "International Conference on Business, Economics and Tourism Management", 1-4.
Author: Anna Zalewska
