Cost Accounting Essay

If you be starting out in a new business, especially a service/manufacturing business, sagacity the hail account statement carcass and which cost news report system leave behind work best for your company, is the depression step to being successful. at once you find psyche to help you navigate those waters, let them help you plane the rough seas of taper and verificatory inventory, consider and in control ride be, and how to allocate grinder knock as well. While it all may sound confusing, having the recompense person with the right knowledge and advice, apprise draw and quarter all the difference to you and the success of your business.We learned in Chapter 19 that cost accounting systems calculate, register, and record increase costs. Once these costs have been recorded, administrators and supervising forcefulness can use these costs for setting their fruit prices, controlling operations and developing fiscal statements. These reports can play an important role in the financial decision making dish for your company so it is imperative that they be accurate and detailed. there be two different types of cost accounting systems. There be called job order cost systems and process cost systems. While both systems ar use by manufacturing companies, the job order cost system is apply by companies that manufacture custom results or groups of products that are alike. The process cost system, on the new(prenominal) hand, is chosen by manufacturing companies that make units of a product that are impossible to tell apart and are produced using a continuous production process.Once you have chosen your type of cost accounting system, you will need to know what types of costs that will need to be reported and the difference in those costs.First, you have direct materials cost and validating materials cost. convey materials costs are materials that will be used as an innate part of the washed-up product. For warning, for an lineman, direct materials would be receptacles and wiring. To be considered and classified as a direct materials cost, it has to be used as an essential part of the finished product and it has to be a world-shaking portion of the sum cost of the finished product.If it does not fit these two requirements, then it is considered an mediate materials cost, or manufacturing plant command processing disk overhead time cost. validating materials are materials used in the production process, but which cannot be linked to a specific product or job. Alternatively, they may be used in such insubstantial quantities on a per-product basis that it is not worthwhile to track them as direct materials (Bragg) .An example of an indirect materials cost, or factory overhead cost, for an electrician would be electrical tape and solder.Next, we have direct and indirect struggle costs. As with direct materials costs, labor costs must also decorous the selfsame(prenominal) two requirements to be labeled d irect labor costs. They must be an essential part of the finished product and must be a significant portion of the total cost of the finished product. If they meet these two requirements, these labor costs are considered direct labor costs.If they do not meet these requirements, they are indirect labor costs, or factory overhead costs. The janitor who cleans the building incurs labor costs for the company however, the janitorial costs are not an essential cost of manufacturing their product. As a result, the janitorial labor costs are indirect labor costs, or factory overhead cost.So what are factory overhead costs and how do you pace and record it? Our textbook describes both in detail. factory overhead costs are indirect costs of the product. As previously mentioned, these can be materials and labor costs that do not right away enterinto the finished product. Some examples include heating system and lighting the factoryProperty taxes on factory buildings and landDepreciation on factory whole kit and boodle and equipmentSandpaper, glue, buffing compoundPower to run the machinesSalaries of production supervisorsBecause factory overhead costs cannot be directly earmarked to jobs, they are instead, utilize to jobs using a common measure related to each job. This common measure is called an action base. The bodily function base used to apply overhead should reflect the use of factory overhead costs. grind overhead costs are usually applied to jobs using a pre act upond factory overhead rate computed as followsPre depositd FactoryEstimated Total Factory Overhead CostsOverhead Rate = Estimated bodily function BaseFor example, if a company estimated a total factory overhead cost of $50,000 for the year and the activity base as 10,000 direct labor hours, a predetermined factory overhead rate of $5 per direct labor hour is computed using the estimated amounts at the beginning of the period. Predetermined factory overhead rated are computed because managers need information about the product cost of each job in a well timed(p) manner. With timely information, managers can fine-tune manufacturing methods or product pricing.Remember, during each step of your manufacturing process, identify and record any cost as well as determine whether the costs are direct, indirect, or factory overhead. keeping up with these costs will help you determine the final cost of each unit and whether or not to make any changes necessary for a more profitable future.Works CitedBragg, Steven, What are Indirect Materials? Questions & Answers Accounting Tools 1 June 2013.Warren, Reeve and Duchac. ACCT 1101 Chapters 18-26 Managerial Accounting. Ohio Cengage, 2012. Print.