Preview

Product Costing System

Better Essays
Open Document
Open Document
1565 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Product Costing System
Product costing systems in modern manufacturing organisations

Product costing refers to the process of assigning shared direct and indirect costs to individual products, customers, branches or other cost items. (USAID, 2007) Product costing is also referred to as assigning costs to inventory and production based on the expenses that go into producing or buying inventory. It is an important process for manufacturers that helps improves management information on products and helps managers and the board members to take key decisions about product design, delivery mechanisms, and especially pricing. (Lacoma, 2013)

There are several benefits of having a product costing done. These include Accuracy, Project Tracking, Decision-Making and Project Development. Accuracy: Accuracy defines how the expenses for the business is found through product costing. It also corrects inventory values through variable costing. Project Tracking: This basically means a keeping track of a project through by assigning costs for various stages and matching it to the success. Decision-Making: Product costing helps in decision making because these decisions often involve return on investment and how much profit a business can make from its sale. Project Development: Creating new products involves the use product costing and is used by a company to plan and design new line of products or to recreate an old product with new features.
(Lacoma, 2013)

Manufacturing costs is also known as the cost to make a product. Thus it plays a major role in product costing. It is classified into three types Direct Materials, Direct Labor and Manufacturing Overheads. So basically Product costs are manufacturing costs. In a balance sheet the product costs are presented as Raw materials inventory, Work in process inventory and Finished goods inventory. If we see the flow of these product costs it goes from the Direct Materials, Direct Labor and Manufacturing Overhead through Work in Process to Finished



Bibliography: Jiambalvo, J. (n.d.). Job Order Costing and Modern Manufacturing Practices . Management acoounting . Koch, J. C. (n.d.). COMPUTER-INTEGRATED MANUFACTURING . (J. Hal Kirkwood, Editor) Retrieved 01 19, 2013, from Reference for business: http://www.referenceforbusiness.com/management/Bun-Comp/Computer-Integrated-Manufacturing.html#b Lacoma, T. (2013). The Advantages Product Costing Offers in Financial Accounting. Retrieved 01 19, 2013, from Chron.com: http://smallbusiness.chron.com/advantages-product-costing-offers-financial-accounting-24883.html Planning for quality and productivity. (n.d.). Retrieved 01 20, 2013, from The Times 100 Business case studies: http://businesscasestudies.co.uk/nissan/planning-for-quality-and-productivity/total-quality-management.html#axzz2IoaXfIM0 Product Costing and Job-Order Costing Systems. (2012). Retrieved 01 19, 2013, from http://acct202.tripod.com/Chapter%203%20Outline.htm USAID. (2007). PRODUCT COSTING AND PRICING MANUAL FOR SACCOs . Retrieved 01 20, 2013, from http://www.usaid.gov: http://pdf.usaid.gov/pdf_docs/PNADK975.pdf UYSAL, Ö. (2010, 10 20). Computer Integrated Manufacturing . Retrieved 01 18, 2013, from Faith University: http://www.fatih.edu.tr/?lab,36&language=EN Wilson, J. (2010, 05 18). Real-Life Examples of Successful JIT Systems. (M. McDonough, Editor) Retrieved 01 19, 2013, from Bright Hub PM: http://www.brighthubpm.com/methods-strategies/71540-real-life-examples-of-successful-jit-systems/ Morrison, James L. (2003). Computer Integrated Manufacturing. Retrieved on Jan 23, 2013 from http://horizon.unc.edu/projects/OTH/1-2_tech1.asp

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Acc202 Wk 1 Assgnment 1

    • 566 Words
    • 3 Pages

    The three main components of product cost for a manufacturing entity are direct materials, direct labor, and manufacturing overhead.…

    • 566 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Process costing is used mostly in companies when converting raw materials into homogenous products. A single product is produced on a continuous basis and all units of the product are identical. Costs are computed by department where the materials, labor, or overhead costs are added to the product in the processing department. Our two companies, The Hershey Company and Kaiser Aluminum, convert raw materials to their finished products of chocolate and aluminum.…

    • 658 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Swot Analysis Of Cole

    • 253 Words
    • 2 Pages

    Product cost consist of manufacturing overheads, direct materials, and direct labour in making its products. This only applies Coles' own home brand which the manufacture to compete with other brands at lower price. Sometimes these product costs of direct materials, direct labor, and manufacturing overhead are also called inventoriable costs, because there are important in the making of the product.…

    • 253 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    cost accounting

    • 4544 Words
    • 19 Pages

    The range of costs included within a product costing system varies from one organisation to another. A comprehensive picture of product costs requires the inclusion of upstream and downstream costs. In practice many businesses confine their product costing systems to manufacturing costs. This is particularly true of small to medium-sized manufacturing businesses since more comprehensive costing systems cost more to implement and maintain. The costing systems that only include manufacturing costs produce the inventory valuations for external financial reporting required by…

    • 4544 Words
    • 19 Pages
    Good Essays
  • Better Essays

    Marketing Iphone

    • 1263 Words
    • 6 Pages

    Determining costs of products is the basis of making pricing decisions because if a company wants to gain profits, it must ensure that the price is higher than the total…

    • 1263 Words
    • 6 Pages
    Better Essays
  • Good Essays

    The Boatyard Case Summary

    • 1524 Words
    • 7 Pages

    Product cost is an important indicator of a comprehensive reflection of enterprise production and business activities. Correct costing, Bates can assess the cost of production and operation expenditure levels, and determine the basis for the company's profits and losses as well as on the development of product prices. And for enterprises conduct business decisions providing important…

    • 1524 Words
    • 7 Pages
    Good Essays
  • Better Essays

    References: Caplan, Dennis. (2011). Management Accounting: Concepts and Techniques, Part 3: Product Costing and Cost Allocations. Retrieved from http://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2011.htm…

    • 2303 Words
    • 8 Pages
    Better Essays
  • Powerful Essays

    Cost Accounting

    • 11176 Words
    • 45 Pages

    Previously, cost accounting was merely considered to be a technique for the ascertainment of costs of products or services on the basis of historical data. In course of time, due to competitive nature of the market, it was realized that ascertaining of cost is not so important as controlling costs. Hence, cost accounting started to be considered more as a technique for cost control as compared to cost ascertainment. Due to the technological developments in all fields, cost reduction has also come within the ambit of cost accounting. Cost accounting is, thus, concerned with recording, classifying and summarizing costs for determination of costs of…

    • 11176 Words
    • 45 Pages
    Powerful Essays
  • Better Essays

    Products Costing System

    • 1686 Words
    • 7 Pages

    We acknowledge that Sunflower Ltd is a large public company, reputable for its diverse range of flowers and large customer base. At present, we have identified that there is no formal product costing system implemented in the company – with the exception of the calculation of product costs imperative for external financial reporting purposes, prepared by your company’s accountant. In order to reduce cost pressures upon Sunflower Ltd, in the highly competitive flower sector, this report recommends the introduction of management accounting into the company, in particular the use of product costing systems. The purpose of this report is to identify an appropriate product costing system that will enable Sunflower Ltd to reach optimal efficiency as well as to justify each costing system that may be applicable to your company. We will additional outline the potential benefits that your company may gain as a result from adopting an suitable product costing system.…

    • 1686 Words
    • 7 Pages
    Better Essays
  • Best Essays

    Management Models

    • 3379 Words
    • 14 Pages

    Mehra, S; Inman, R.A. (1990), JIT implementation within a service industry: a case study, International Journal of Service Industry Management, 1(3), pp. 53-61…

    • 3379 Words
    • 14 Pages
    Best Essays
  • Powerful Essays

    Information systems transformed the manufacturing process beginning with digital manufacturing and the integration of Computer-Aided Design (CAD) and Computer-Aided Manufacturing (CAM). The standards were developed in the 1980's by the Society of Manufacturing Engineers (SME). Computer-Integrated Manufacturing (CIM) is unique by incorporating information systems for data storage, retrieval, manipulation, and presentation. The purpose of CIM is to integrate product design, engineering, process planning and manufacturing by means of computer systems. By integrating all phases of manufacturing, a company can increase productivity, quality, meet customer needs more effectively and gain flexibility (CIM).…

    • 2192 Words
    • 9 Pages
    Powerful Essays
  • Powerful Essays

    The purpose of cost accounting is to ascertain the costs of products and services. When properly implemented, the cost accounting function will provide necessary information for pricing decisions, identify the profitability of each product, service, or job, aid management in maximizing profits by detecting sources of wastages and excess capacity, and can influence management behaviour. In theory, cost accounting help managers make decisions to fulfill an organization’s goals.…

    • 2209 Words
    • 9 Pages
    Powerful Essays
  • Satisfactory Essays

    ACC 202

    • 505 Words
    • 4 Pages

    b. Measuring product costs for a retail store involves marketing and selling costs and administrative costs. It is more complex for a manufacturing entity because costs range from direct materials, direct labor, indirect materials, indirect labor, equipment, equipment depreciation, rent, and utilities. With product costs in a manufacturing entity the costs must be in some way traced back to the product whether directly or indirectly.…

    • 505 Words
    • 4 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Cost accounting offers benefits for manufacturing companies. A cost accounting information system offers benefits for many companies. Cost accounting is a type of accounting method concerned with the cost of goods manufactured and /or sold. Many factors are taken into consideration when cost accountants analyze business costs . The information determined by these accountants is used for inventory valuation , financial statements and decision making . Inventory Valuation Cost accounting offers the benefit of having an accurate inventory valuation of all inventories on hand . This includes all raw products used to make goods , all work-in -process inventories and all finished goods ready for sale. Cost accountants take all costs into consideration and are able to determine the value of all of these inventories on hand . This information is useful for financial statements and for management of the company . Managers use this information to determine selling goals and production needs . Maximum Efficiency Cost accounting is beneficial to determine the maximum efficiency production amounts . Cost accountants take all costs into consideration when calculating this amount . Manufacturing costs consist of direct labor , materials and manufacturing overhead. These costs are all calculated and added up to find a per- unit cost price for manufactured items. When the cost price is calculated, these accountants begin determining a hypothesis of production rates . Many times cost accountants determine that if production is increased slightly, overhead costs remain the same. If this is the case, increasing production actually results in a lower per -unit cost for production , and the end result is a higher profit . Decision Making The information determined by cost accountants is used for decision making for future company needs . Short -term goals and decisions are made as well as long-term strategic…

    • 377 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    Standard Costing

    • 4515 Words
    • 19 Pages

    In recent years, numerous tools such as activity-based costing, the balanced score card and target costing have gained prominence in the business community. Nonetheless, traditional management accounting continues to be prevalent in practice. One example is standard costing, which has been used on a wide front during the last century.…

    • 4515 Words
    • 19 Pages
    Better Essays