ch03s - Traditional Cost Management Systems Chapter 3 Cost...

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Traditional Cost Management Systems Chapter 3
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Cost Management Systems Cost management systems have a wide variety of uses – two common are Job order costing Process costing Many companies continue to use these two systems
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Cost Management Systems All cost systems : Expense categories are developed and then expenses are mapped to service departments, production centers, or activities Expenses are then attached to cost objects The way these links are made and the activities defined is what differentiates systems
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Manufacturing costs The costs of producing a product can be broken down into two broad categories: Direct cost – cost of a resource or activity that is acquired or used by a single cost object Indirect cost – cost of a resource that was acquired to be used by more than one cost object
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Manufacturing Companies from weekend one The 3 major categories of manufacturing costs: Direct Materials Raw materials, components, and other parts that can be traced to a specific product. Direct Labor Payments and benefits for those employees who convert direct materials into finished product. Manufacturing Overhead Indirect material Indirect labor Other overhead
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Manufacturing Companies Prime Costs include: Direct Materials Direct Labor Manufacturing Overhead
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Manufacturing Companies Conversion Costs include: Direct Materials Direct Labor Manufacturing Overhead
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Direct and Indirect Costs Direct costs can be easily traced to a cost object Indirect costs cannot easily be traced to a cost object so they must be allocated or assigned to the cost object
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Job Order v. Process Costing Systems A job order costing system estimates the costs of manufacturing products for different jobs required for specific customer orders A process costing system is applicable when all units produced during a specified time frame are treated as one unit of output
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Need for Job Order Costing Products may differ Materials content Hours of labor required Machine time required Demand placed on support activity resources (i.e.,
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ch03s - Traditional Cost Management Systems Chapter 3 Cost...

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