Tracking of Process Costing System Through the manufacturing process of completing the product process costing will trace and accumulate the direct costs of the computer memory chip and the indirect costs of manufacturing the product will be allocated through a material requisition form. Normally in large batches costs will be assigned to the computer memory chip which could include production for a complete month. The costs will then eventually have to be allocated to the individual units of the computer memory chip. The total individual units of the computer memory chip must be allocated because even though we may manufacture tons of thousands of the new computer memory chip in a particular period, the memory chip still must be sold in small masses so that cost of producing it can be conveyed from completed products to total cost of selling the manufactured product. The costs of the completed computer memory chip will then be transferred from the inventory of work-in-progress to the completed product inventory. After the per-unit cost of the computer memory chip is calculated a cost summary report will be prepared for each area that worked on the new product (Cliff Notes, 2011). Both a job order costing system and a process costing system serve to present a business with a cost per-unit of a product which is founded upon the direct costs related to producing the product. In this respect, both systems will have the identical intentions which will be to allocate material, manual labor, and overhead costs to products a business produces. However, a process costing system provides a per-unit cost based on manufacturing products that are consistent over an extensive time period, while a job order costing system will present costs of manufacturing different products on a per-unit basis. The costs associated with a process coding system are gathered by areas within the processing of the product, while the costs associated with a job order costing system are gathered by the individual jobs linked with processing the product. Another difference in a job costing system and a process costing system is that in tracking the costs associated with each there are two different methods for doing this. A job cost sheet is utilized to process the costing connected with products manufactured in a job costing system, and a report on production regarding each area the manufactured product passes through is used to process the costing related to the work performed (Accounting for Management, 2009). It is assumed that a single product, the computer memory chip, is going to be manufactured by the company in massive amounts for an extensive amount of time, so the selected system to use to track the costs associated with the new product would be a process costing system. The process costing system will serve to provide the company with processing costs related to the computer memory chip based on direct costs and operating costs (White, 2010). However, in allocating for operating costs a cost driver will be required. The cost driver is an item that can be measured, but it will drive the operating costs associated with producing the computer memory chip. With that being said, the cost driver will be a core element for causing changes in the activity of costs associated with manufacturing the computer chip memory. Operating cost costs related to producing the computer chip memory in which expenses would be influenced include machines that are needed, labor for workers who operate the machines, and power consumer for operating the machines. Conversely, when the foundation of labor directly is assumed to be the mass of operational costs associated with the product then, the direct product work hours will generally be employed as the driver (Web Finance, 2010). Also, with the company using a process coding system to trace the costs of the computer memory chip an allocation on a price per-unit can be accurately made to essentially price the new product, and plan and control expenses related to the product. Furthermore, process costing will provide feedback to managers that can be utilized to compare the expenses associated with manufacturing the computer memory chip from month to month, however managers will need to watch the costs of preparing the individual unit on a daily basis (White, 2010).
Posted on: Thu, 06 Mar 2014 04:16:51 +0000
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