THE COSTS
COST SYSTEMS

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            The objective of a cost system or costing system is accumulate the costs of goods or services. The information on the cost of a product or service is used by managers to set the prices of the product, control operations, and develop financial statements. Also, the cost system improves control by providing information on the costs incurred by each department or manufacturing process.

    COST SYSTEMS DEPENDING ON HOW COSTS OF PRODUCTION ARE ACCUMULATED

    Job order cost system

            
    A job order cost system provides a separate record for the cost of each quantity of product passing through the factory. A quantity of each particular product is called order. A job order cost system fits better in the industries that develop products with that have different specifications most of the time or that have a wide variety of products in stock. Many service companies use this type of system for costing orders by accumulating the costs associated with providing services to their customers. Some characteristics of the job order cost systems are listed below:

    - They accumulate in batches
    - Production under specific orders
    - Normally does not produces the same article
    - Examples: Accounting firm, construction company, law practice, apparel manufacturing, movie studio
    .
    Process cost system

            In a process cost system, costs are accumulated for each department or process in the factory. A process cost system fits more in companies manufacturing products which are not distinguishable with each other during a process of continuous production. Some characteristics of process cost systems are listed below:

    - They accumulate costs by department
    - Production continuous and homogeneous
    - Examples: Oil Refinery, food processing, paper processing, soft drinks, medicines, buckets, toys, pants.

    "When" should the cost of production be determined?
    - Before we begin the process - Default costs (estimated or standard)
    - After or at the same time of the process - Actual costs (current or historical).




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