The cost accumulation process is highly efficient and portions of it can possibly be automated. This approach works well for large production runs of identical items, such as a production run of 100,000 cell phones.
Materials, labor and overhead costs are compiled in aggregate for an entire production process, and are then allocated to individual production units.
The cost accumulation process is highly detailed and labor-intensive. This approach works best for unique products, such as custom-designed machines or consulting projects. Materials, labor, and overhead costs are compiled for an individual unit or job. The primary costing systems are noted below. A business can accumulate information based on either one, or adopt a hybrid approach that mixes and matches systems to best meet its needs. There are two main types of costing systems. These reports may be accompanied by additional information assembled by the accounting department, which provide details regarding how certain costs were incurred and who authorized them. Profitability reports for customers, sales regions, stores, products, and/or product linesĮxpense trend reports that show expenses incurred by month for many consecutive months Typical reports created by a costing system include:īudget-versus-actual reports for costs incurred Instead, management can decide what types of information it prefers to see, which information to ignore, and how the results are to be formatted and distributed for its consumption.
The reports of a costing system are intended for internal use, and so are not subject to the reporting requirements of any of the accounting frameworks, such as GAAP or IFRS. Matching actual costs incurred against budgeted cost levels for control purposesĬreating strategic and tactical plans for future operations The information issued by a costing system is used by management for a variety of purposes, including:įine-tuning operations to generate higher profitabilityĭeciding where to cut costs in the event of a business downturn The areas reported upon can be any part of a company, including its customers, departments, facilities, processes, products and services, research and development, and sales regions. The system is comprised of a set of forms, processes, controls, and reports that are designed to aggregate and report to management about revenues, costs, and profitability. A costing system is designed to monitor the costs incurred by a business.
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