Cost Accounting System: Features, Types, and Process
**Cost Accounting System Process**
1. Features
- They are used in companies manufacturing in series, similar or homogeneous products, where the final product is the result of several successive processes.
- It is a cost accumulation method that can calculate averages for each period (daily, weekly, monthly, or yearly) for each element of cost.
- The application of this methodology is piped through cost centers, which shall monitor the consumption of the components of costs absorbed by each process or department, and also observe and make decisions regarding the operation and performance of each.
- This methodology requires an adequate synchronization between different departments that are geared towards the continuous improvement of processes, all of which lead to greater specialization of workers in your area, as opposed to losing the overall view of the final product.
2. Types of Organization of Production Processes
2.1 Lineal
Process 1 → Process 2 → Process n → Finished Product
2.2 Pendular
Department A → Department B → Department C → Department F → Finished Product
Department D → Department E
3. Auditors to Control the Cost
According to the flowchart, it follows that every process or department and Finished Goods are equivalent units. It is noteworthy that for the units surrendered, Department A to Department B are completed units, while for the semi-Department B are units, which in any case independently absorb each of the constituent elements of the cost.
Raw Materials → Department A → Finished Goods → Cost of Sales
Direct Labor → Department B
Manufacturing Overhead → Department C
4. Production Process
4.1 Steps
4.1.1 Physical Flow
Refers to the physical units involved in the process, which consists of units initiated or received units in the former department, the department transferred the following equivalent units, normal losses, and the extraordinary losses.
4.1.2 Cost Report
It comprises a transfer fee before the department or process expressed in monetary terms. It is added values that affect each of the constituent elements of cost that have been absorbed by the new department, thus getting the Cost to Justify (CTA).
4.1.3 Equivalent Production
It refers to physical units separated by cost element and distributed units completed and transferred to the next department, extraordinary losses, and equivalent units.
4.1.4 Calculation of Cost
It works with the background provided by the Cost Report, proceeding first to determine the Received and Adjusted Unit Cost (RAUC), which is obtained from the difference between the cost of transferring the former department and normal losses, a figure that is then divided by the units transferred from the previous department. Having completed these calculations, it is necessary to determine the costs of each department that is costing. To this end, we divide the value of any part of the cost of equivalent production. The sum of Received and Adjusted Unit Cost (RAUC) and the cost of the department itself gives rise to the Transfer Unit Cost (TUC).
4.1.5 Distribution of Cost
It is to justify the cost report (CTA). To this effect, it takes into account the Transfer Unit Cost (TUC) and the Received and Adjusted Unit Cost (RAUC), which applies to Units Completed and Transferred to the following Department, Extraordinary Losses, and equivalent units.
4.2 Additional Definitions
4.2.1 Equivalent Units
Applies to units that are in the process, which for the purposes of determining the cost of the department are taken as if these were completed, but in direct proportion to the degree of development of each component of the cost.
4.2.2 Normal Losses
The same production process absorbs through RAUC and is considered good units that participated in the production process, thus producing an increase in the cost of the product.
4.2.3 Extraordinary Losses
Are considered for all purposes of calculating unit costs as well, being considered in the calculation of Equivalent Production and Distribution Cost as a result of the loss.