Establishment of budgets, standard cost and actual costs of operation, process or product and analysis of variance, profitability and cost of goods manufacture.
Cost accounting of a company is foundation of financial information system, management need information to plan, control and make decisions.
Every costing system is unique because it must be designed to suit the distinguish processes of a company as well as the competency and experience of the people engaged in cost accounting.
Costing information is valuable for the valuation of closing stock otherwise there is a risk that profitability of a company is wrongly reported in the financial statements.
Characteristics of a costing system
- Cost per unit of product or service.
- Cost of running a department process and service.
- Cost of defective or rejected goods.
- Cost and units of work in process lying in each production processes.
- Classification of closing stock in to finished, semi-finished and raw materials etc.
- Detailed analysis of all manufacturing expenditures.
- Monitoring of machinery and labor efficiency.
- Reporting of normal and abnormal loss.
- Expected cost of different products and services and reporting of variances.
- Cost information accurate, reliable and authentic for management purpose.
- Costing system appropriate and suitable to the company’s product / services.
- Production report produced at regular intervals enough to be effective.
- Expected cost of order calculated before quoting price to the vendor.
- Normal/Abnormal Losses are calculated for each product/job.
- Cost and financial information are integrated and on the basis of cost information costs of goods sold prepared.
- Process/job order/batch order costing are being used for cost accumulation purpose.
- Equivalent units of material, labor and overheads in relation to products in process are calculated.