Costing Is An Important Process Accounting Essay

CostingA isA an of import procedure, which many companiesA slot in to maintain path of where their money is being spent in the production and distribution process.A ( Process Costing, 2011 )

AccountingA system was establishedA to overseeA the company’sA costs and provideA informationA on the operationA and public presentation direction. ( Costing System Definition, 2011 )

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Cost accountingA system is aA more extensiveA accounting intervention used by the organizationA of theA system components.A Costing system ‘s chief map isA to maintainA the outgo of a peculiar organisation. Whereas the information that is gathered and generated by the costing system is besides incorporated into the overall accounting system, the bing attack allows for easy beginning of the informations for studies to the upper direction.

ConsideredA the information gatheredA by theA cost accounting systemA enables directors toA identify theA two success factorsA that isA related toA the company’sA critical of the current state of affairs. Operational costs are the constitution of informations composed by a costing system. The direction is able to acquire all outgos that are squarely associated with the general map of the organisation, particularly in footings of production costs. ( Costing System, 2011 )

Traditional and Modern Costing System

Traditional Costing System

Traditional costing system is any of the methodical costing methods that prevailed before the rise of activity-based costing. It is because they rely on a basically unlogical proviso of indirect costs ; such systems do non give directors exact merchandise cost information, which means that exact consequence of merchandise prosperity is non possible. The overhead rate in a traditional costing system would classically be calculated utilizing direct labour hours, machine hours, or units. This could take to exact merchandise costs. ( Traditional costing system )

Traditional costing is besides a costing system that does non segregate cost by business or allocation or even by each portion of the fabrication procedure. It takes a entire cost and divides it by each portion of the procedure. Basically each portion of the fabrication procedure is assigned an equal predictable cost. ( Traditional costing system. 2011 )

The strengths of traditional costing systems are:

Straightforwardness – the calculation of overhead rates is reasonably undemanding ;

They are normally understood in the concern ;

They are non epicurean to map ;

They are still being used after many decennaries.

The failings of traditional costing systems are:

Their dependance on unlogical instead thanA cause-and-effect allocationA of operating expenses ;

Their incapableness to give exact merchandise costs in multiproduct companies ;

Their dislocation to analyse non-manufacturing costs.

( Definition of traditional costing system, 2011 )

Modern Costing System

Modern bing divided into three bing which are:

Target Costing

It focuses on mark cost per unit, which is the predictable unit cost at a merchandise that when it sold at the mark monetary value, enables organisation to gain the mark net income per unit. ( Current Cost Accounting Methods, A 2011 )

Department Costing

As an option of a individual allocation base, uses separate indirect cost rates for each section. It supposes that each section has different allotment base. ( Current Cost Accounting Methods, A 2011 )

Activity-based costing

It is a method for ciphering object costs, in the manner that overhead, merchandising, general and administrative costs assigned to an object reveal the operating expense services really enthusiastic by the object. ( Current Cost Accounting Methods, A 2011 )

Why Modern Costing?

Many factors like whirl of the production procedure, regularity of operation at competency, or the nature of hostility, must be taken into history when make up one’s minding what cost system a company will implement.A In order to set up what types of cost systems U.S. fabrication companies use and to detect the differences, if any, in the information generated from them, a survey was conducted on finance and accounting professionals. ( Management and accounting, 2011 )

A significant proportion of merchandise costs come from the operating expense that is owed to that merchandise, but based on the costing system used, the sum owed can differ to a great extent due to the fact that the dissimilar bing systems apportion overhead in really different ways.A The traditional costing system uses a simple step, such as machine hours, to allocate operating expense, ABC uses cost pools and cost drivers to apportion operating expense costs based on usage.A A In theA traditional viewA andA ABCA cost systemsA for allA variable costsA in theA long tally, A will beA allocatedA in a figure ofA merchandises. ( Management and accounting, 2011 )

Activity-based costing is characteristically intended to run into direction determination devising demands ; cardinal associations exist between overhead part and merchandise use, and criticized for non linked to quality and bringing schemes. ( Management and accounting, 2011 )

Decision

Cost accountingA system is aA more extensiveA accounting systemA used byA an organisation. The chief map ofA the cost ofA calculating systemsA is to maintainA the expenditureA of the company. Although this isA the aggregation andA costingA system to produceA theA informations alsoA integrated into the overallA accounting system, the costA is calculatedA to allowA easyA extractionA of dataA toA upper managementA forces.

Cost accounting systemA is usuallyA consideredA information collectedA by theA proprietors andA managersA to place theA two factors that areA related toA the company’sA current state of affairs. Operational costs are often the footing of the informations composed by a costing system. Management is able to acquire all outgos that are squarely linked with the general operation of the organisation, particularly in footings of production costs. ( Costing System, 2011 )

List of Mention

Procedure Costing: Types of Accounting Costing Systems, 2011. [ ONLINE ] Available at: hypertext transfer protocol: //www.suite101.com/content/process-costing-a52142. [ Accessed 13 March 2011 ] .

Costing System Definition, 2011 [ ONLINE ] Available at: hypertext transfer protocol: //www.investorwords.com/1152/Costing_System.html. [ Accessed 13 March 2011 ] .

What is a Costing System? , 2011 [ ONLINE ] Available at: hypertext transfer protocol: //www.wisegeek.com/what-is-a-costing-system.htm. [ Accessed 13 March 2011 ] .

Traditional costing system, Definition of traditional costing system, HighBeam.com: [ ONLINE ] Dictionary. [ ONLINE ] Available at: hypertext transfer protocol: //www.highbeam.com/doc/1O18-traditionalcostingsystem.html. [ Accessed 13 March 2011 ] .

Answers.com – What is a traditional costing system, 2011 [ ONLINE ] Available at: hypertext transfer protocol: //wiki.answers.com/Q/What_is_a_traditional_costing_system. [ Accessed 13 March 2011 ] .

Traditional costing system – Dictionary definition of traditional costing system, Encyclopedia.com: Free online lexicon, 2011 [ ONLINE ] Available at: A hypertext transfer protocol: //www.encyclopedia.com/doc/1O18-traditionalcostingsystem.html. [ Accessed 13 March 2011 ] .

Current Cost Accounting Methods, A 2011 [ ONLINE ] Available at: hypertext transfer protocol: //docs.google.com/viewer? a=v & A ; q=cache: zv-2-4WJLGMJ: www3.ekf.tuke.sk/konfera2008/zbornik/files/prezentacie/rac_livia.ppt+Modern+Costing+System & A ; hl=en & A ; gl=my & A ; pid=bl & A ; srcid=ADGEESi17ltD5b5_DG3QQbx5v6_U3XA4qKJqCJYj1mnStPFmDTqymjZ4gp1u7wMNlb-mp-oCL_VKmUL_ob5JHHkQvKpGvdZOQtmvNgxu-4aBs8m9C513cWmwUoDRkbWxic-Wg0CTcyjy & A ; sig=AHIEtbRQiRlxaWNEVi_TTVA4OZ_TmqElmw. [ Accessed 13 March 2011 ] .

Management and accounting, 2011 [ ONLINE ] Available at: hypertext transfer protocol: //maaw.info/ArticleSummaries/ArtSumHughesGjerde03.htm. [ Accessed 13 March 2011 ] .

Question 2:

Introduction

Just-in-timeA is an stock list system where natural stuffs are delivered on clip before they are required on the gathering line, and finished goods are contrived before they are shipped to clients. Just-in-time enhances return onA speculationA by well cut downing overhead cost, keeping quality reviews, and extinguishing superseded stock. Just-in-time does breed important hazard. However under just-in-time systems, industry Michigans when parts are n’t direct on agenda and tremendous constrictions are created. Therefore successful just-in-time fabrication requires both superior direction and a extremely disciplined work force. Just-in-time is personally linked with methods introduced and developed by the Toyota Motor Company of Japan and copied by makers throughout the universe. However, just-in-time is merely one constituent of the widespread Toyota Production System, which attempts to kill off waste of all sort. ( Just-in-time Definition, 2011 )

JIT is a tactic for stock list direction in which natural stuffs and constituents are delivered from the marketer or provider outright before they are needed in the fabrication procedure. ( Definition and Meaning, 2011 )

Companies purchase stuffs and bring forth units merely every bit needed to run into existent clients demand utilizing Just in Time ( JIT ) fabrication and stock list control system. Inventories are reduced to the lower limit and in some instances isA zero in merely in clip fabrication system. Both fabrication and selling companies used JIT attack. It has the most philosophical effects, nevertheless, on the operations of fabrication companies which maintain natural stuff, A Work in procedure, andA finished goods the three categories of stock lists. Conventionally, fabricating companies have maintained all three types of stock lists to run as buffers so that operations can transport on expeditiously even if there are unanticipated disruptions.A Raw materialsA stock lists offer insurance in instance of late bringings from. A Work in processA stock lists are maintained in instance a work station is incapable to work due to a clang or other reason.A Finished goodsA stock lists are maintained to suit unanticipated fluctuations in demand. These stock lists provide buffers against unanticipated events. In add-on to the money tied up in the stock lists, authorization difference that the personal appeal of stock lists encourages incompetent and careless work, consequences in excessively many defects, and stunningly increase the sum of clip necessity to comprehensive a merchandise. ( JIT Manufacturing-Inventory Control System, 2011 )

JIT buying is besides the reception of stuffs merely when it is needed for production. The production procedure is organized in a manner that adequate natural stuffs, work in procedure, finished goods, parts and constituents arrive at the works when it is ready to be used, non excessively early and non excessively late. JIT buying purposes to extinguish wastage from fabricating activities cut down stock to zero, achieve a uninterrupted flow of production and extinguish or minimise non value-added activities. ( bk pg44-45 )

Advantages and Disadvantages

Advantages:

The chief benefit ofA JIT can better production efficiency. The advantages of JIT are as the followers:

Lower stock keeping means a decline in storage room which saves rent and insurance costs

Less on the job capital is tied up as the stock is merely obtained when it is required

There is less chance of stock inclement, going out of day of the month

Avoids the rush of unsold finished merchandise that can go on with unexpected alterations in demand

Less clip is exhausted on scrutiny and re-working the merchandise of others as the prominence is on acquiring the workA right first clip

( Just in clip production, 2011 )

Long term partnership established with few providers

Savingss in clip due to fewer providers to cover with

Merchandises spend less clip on the shelves before sale

Quality control at beginning

Increase efficiency and productiveness

Reduces administrative and paperwork

Reduces investing in stock lists ( BK pg48 )

For illustration

Personal computers Just In Time Management:

Del Computer Corporation has eventually tuned its Just-in-Time system so that an regulate for a individualized personal computing machine that comes in over the cyberspace at 9am can be on a bringing truck to the client by 9 P.M. In accretion, Dell ‘s low cost production system allows it to under monetary value its challengers by 10 % to 15 % . This incorporation has made Dell the aspiration of the personal computing machine industry and has enabled the company to turn at five times the industry rate. While machines from Compaq and IBM can pine away on trader shelves for two months Dell does non get down telling constituents and piecing computing machines until an order is booked as the monetary value of Personal computer parts can fall quickly in merely a few months. By telling right before assembly, Dell figures it s parts, on norm, are 60 yearss newer than those in an IBM or Compaq machine sold at the same clip. That can interpret into a 6 % net income advantage in constituents entirely. ( JIT Manufacturing-Inventory Control System, 2011 )

Disadvantages:

Implementing thorough JIT processs can prosecute a most of import inspection and repair of your concern systems that it may be complicated and dearly-won to originate. The disadvantages are as below:

Small room for doing errors as minimum stock is reserved for re-working faulty merchandise

Construction is really contingent on providers and if stock is non delivered on clip, the whole production docket can be deferred

No fresh finished merchandise gettable to run into unanticipated orders, because all merchandises are made to run into existent orders. However, JIT is a really accessible method of production

( Just in clip production, 2011 )

Example

Toyota the Developer of JIT System:

Just-in-time fabrication system has many advantages, but they are defenceless to unanticipated breaks in supply. A production line can rapidly come to a apprehension if necessary parts are out of stock.A Toyota, the developer of JIT, found this out the difficult manner. A fire at AisinA seiki Company’sA works in Aichi Prefecture stopped the bringing of all interruption parts to Toyota one Saturday. Toyota had to shut down all of its Nipponese assembly line by Tuesday. Toyota had lost an estimated $ 15 billion in gross revenues, by the clip the supply of brake parts had been restored. ( JIT Manufacturing-Inventory Control System, 2011 )

JIT applied into a auto fabrication concern

Buyer identifies provider ( s )

Buyer topographic points order with provider

Buyer gives supplier ( s ) a transcript of production agenda

Materials used in production instantly

Supplier delivers merely in clip

Supplier carries out quality control

JIT buying purposes to extinguish wastage from fabricating activities cut down stock to zero, achieve a uninterrupted flow of production and extinguish or minimise non value-added activities.

Figure 1: JIT Purchasing ( BK pg45 )

In JIT buying the purchaser must place and develop close relationships with a few providers.

Besides, purchasers buy on a regular basis over the long term to guarantee the provider of gross revenues that allow the provider to be after for the purchase of stuff, constituents, parts and particular purpose machines. Buyers besides must inform the provider of long term demands which enables the provider to be after his investing in stock list.

Then, the purchaser gives one or more providers a transcript of production agenda.

Furthermore, supplier will vouch the quality of the stuffs before they deliver through quality review at beginning.

Furthermore, supplier will guarantee shorter lead clip. Zero lead clip is an ideal. Then there would non be a demand to keep any safety stocks.

Last, the stuffs are used in the production instantly after the bringing of parts.

Decision

JIT buying is a reception of stuffs merely when it is needed for production. ( BK pg408 ) JIT overcomes the failings of economic order measure. JIT buying besides involves little and frequent purchases, seasonably bringing through good relationship with providers, measure control at beginning, measure purchase, about no stock is carried, smoother workflow and significant cost decrease. ( BK pg50 )

Consequently ofA advantages, every twelvemonth more companies are accomplishmentA just-in-time ( JIT ) fabrication system. Most companies find that simply plummeting stock lists is non plenty but to linger competitory in an of all time changing and of all time competitory concern environment, must fight for ceaseless upgrading. ( JIT Manufacturing-Inventory Control System, 2011 )

Last, JIT besides opens concerns to a figure of hazards, conspicuouslyA those connected with your supply concatenation. SinceA there is no stockA to fall back on, a little perturbation inA supplies to your concern from merely one provider could coerce industry to halt at really short notice. ( JIT Manufacturing-Inventory Control System, 2011 )

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