Cost Calculation Based on Orders_Management

LECTURE NOTES COST CALCULATION BASED ON ORDERS In cost accounting, direct materials, direct labor, and factory overhead costs for a product, service, or project are recorded, grouped and invoiced. The characteristics of ordering costs are as follows: 1. The nature of the manufacturing process is temporary and depends on the order received. 2. Technical data and product forms vary by customer, 3. The production cost of each order is recorded in detail on the order cost card. 4. After the order is completed, the total production cost of each type of cost is calculated. 5. The method used to calculate the cost per unit is to divide the total production cost by direct materials, direct labor and indirect costs and add it up with the total units ordered. 6. Accumulated fees usually use normal fees. 7. Finished products can be stored in warehouses or sent directly to customers. When developing a particular cost accounting system for a particular company, the managing accountant must choose between three options. Each of these three options follows the following characteristics of the calculation method: 1. Cost accumulation method  Cost calculation based on orders (job costing), in the system job-order costing, orders consist of individual products or batches of products or services, where a job-order costing system is appropriate when most costs are incurred on orders that are directly identifiable with a particular product, product batch, customer order, contract or project, view from the type of company that uses order-based costing.  Costing based on process (process costing), or joint costing is found in companies that produce one or several homogeneous products or services, these companies often have continuous mass production, this is not economical to use to trace most of the costs of a single product. 2. Cost measurement method  The actual cost system uses the actual costs of all product costs, including direct material costs, direct labor costs and operating costs.  In a normal costing system, you use actual costs to find direct materials, direct labor, and factory overhead. The normal costing method is to estimate the portion of indirect costs assigned to each product as they are incurred.  The standard cost system uses standard costs and quantities for three types of production costs: direct material costs, direct labor costs and operating costs. Standard cost is the cost that the company expects. The standard cost accounting system forms the basis for cost management, performance evaluation and process improvement. 3. Overhead loading method A quantity-based costing system uses quantity-based cost drivers to assign indirec costs/overhead costs. Every product costing system reflects these three options. The choice of system depends on the nature of the industry and the product or service, the company's strategic and management information needs, and the costs and benefits of acquiring, designing, modifying, and implementing a particular system. Normal costing is used to avoid unit cost fluctuations caused by monthly changes in production units and indirect costs when calculating actual costs. It is called a method of calculation because it standardizes the variation in indirect costs using a specific annual factory indirect cost ratio. Reported indirect costs/factory overhead rates are estimates of indirect factory costs used to calculate indirect factory costs for a particular job. The total indirect factory cost charged to orders using a specified indirect cost rate is also known as indirect factory cost (applies to indirect factory costs). To get a specific overhead rate, do the following four Steps: 1. Estimated total factory overhead costs over the entire system life cycle (usually one year) 2. Select the most appropriate cost factor for calculating factory overhead. 3. Estimate the total number of selected cost drivers during the operational period. 4. Dividing the factory overhead estimate by the estimated number of cost factors gives a specific utilization rate. Differences due to excess costs charged or excess factory overhead can be determined in two ways: 1. Adjusted cost of goods sold 2. Adjust the current production costs, namely the balance of factory overhead costs during the period divided by the balance of work in progress, finished goods inventory and cost of goods sold. If the difference in factory overhead charged is too small or too high, it is usually adjusted to cost of goods sold. Conversely, if there are many, it is usually distributed proportionally. Losses in the manufacturing process : 1. In the manufacturing process, residual materials can come from:  Processing is not good / cheating  Damaged or defective parts are not refundable  Inventory / stock is too long.  End of Test Project / End of Test Project  The processing machine is old. 2. Damaged Products In the manufacturing process, the products produced do not meet established quality standards, but can be repaired economically at a certain cost. The costs incurred are often higher than the selling price of the repaired product. When the manufacturing process is complete, you will see the damaged product. 3. Product Defect Products made in the manufacturing process do not meet established quality standards, but can be repaired economically at a lower cost and selling value after repair.