Understanding Cost Accounting Systems in Manufacturing
Cost Accounting System for Process
1. Characteristics:
Companies that are used in manufactured products in series, like homogeneous products, utilize an accumulation method of calculating average cost that is performed each time (daily, weekly, monthly, or annually) for each item of cost.
The application of this methodology is channeled through centers of costs responsible for controlling the consumption of constituent elements of cost absorbed by each process or department. This also involves making decisions regarding the operation and performance of each.
This methodology requires adequate synchronization between the different departments and is oriented towards the continuous improvement of processes, leading to much greater specialization of work in your area, as opposed to a global vision that loses sight of the final product.
2. Organization Types of Production Processes:
2.1. Linear
Process 1 → Process 2 → Process 3 → … → Process N
2.2. Pendular
Dept A ↔ Dept B ↔ Dept C ↔ Dept D ↔ Dept E ↔ Dept F
3. Controlling the Cost Accounts:
To the full extent, it follows that in each process or department, there are finished goods and equivalent units. Note that for Department A, units delivered to Department B are determined units, while for Department B, it is a semi-finished unit that will absorb each constituent element of cost independently.
4. Production Process:
4.1. Stages:
4.1.1. Physical Flows:
This refers to the physical units involved in the process, which are composed of the units received from the previous department, the units transferred to the next department, equivalent units, normal losses, and extraordinary losses.
4.1.2. Report of Costs:
This comprises the cost of transferring from the earlier department expressed in monetary terms, which includes the values that affect each of the constituent elements of the costs absorbed by the new department, thus providing the total cost to justify (CTA).
4.1.3. Production Equivalent:
This refers to units by separate physical elements of cost and distributed in completed units and transferred to the following department, including extraordinary losses and equivalent units.
4.1.4. Estimated Cost:
Working with the report of antecedents providing the cost, it is necessary to first determine the unit cost received as adjusted (CURA), which is the difference between the cost of transfer from the former department and normal losses. Subsequently, this is split among the units transferred by the former department. After completing this assessment, estimates of the cost for the department being charged are undertaken. For this purpose, divide the value of each item constitutive of production cost by equivalent units. The sum of received and adjusted unit cost (CURA) and the cost of the original unit cost of transfer (CUT) is calculated.
4.1.5. Distribution of Cost:
The report is to justify the cost (CTA), keeping in mind the transfer unit cost (CUT) and received and adjusted unit cost (CURA), which applies to the completed units and transfers to the next department, including extraordinary losses and equivalent units.
4.2. Additional Definitions:
4.2.1. Equivalent Units:
These are the units in the process, which for the purpose of determining the cost of the department are taken as if they were completed, but in direct proportion to the degree of progress of each constituent cost item.
4.2.2. Normal Losses:
These are the losses incurred during the production process, which are considered as good units that participated in the production process, contributing to the finished product cost.
4.2.3. Extraordinary Losses:
These are considered for all purposes of calculating unit costs as good, being included in the calculation of the distribution of equivalent production and costs as a result of loss.
4.3. Outlines of the Stages of the Production Process:
4.3.1. Physical Flow:
Units indicated or received, completed, and transferable to the next department, with progress in process including MPD%, MOD%, and CIF%.
Normal loss
Extraordinary loss
4.3.2. Cost Report:
Received from the department: $
Department: $
MPD: $
MOD: $
CIF: $
Adjusted total cost: $
4.3.3. Production Equivalent:
MOD, MPD, CIF
Completed and transferred to the department: $
Extraordinary loss
Inventory of goods in process
Total:
4.3.4. Calculation of Cost:
Received and adjusted unit cost: $
Unit cost department: $
MPD: $
MOD: $
CIF: $
Unit cost of transfer: $
4.3.5. Distribution of Cost:
Units completed and transferred to the department: $
Extraordinary loss: $
Goods in process ending: $
From the department: $
The department: $
MPD: $
MOD: $
CIF: $
Total cost justified: $