On this occasion we will discuss the Cost Accounting Information System, Account List, Processing, Sensitivity and Size, happy reading …
Table of contents :
- Cost Accounting Information System
- Types of Cost Accounting Information Systems:
- Definition of Code List
- Requirements for making a chart of account
- Processing (Costing process)
- Sensitivity Analysis
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Cost Accounting Information System
Types of Cost Accounting Information Systems:
Most of these companies will also use order and process cost calculations to be able to charge production costs:
This order cost calculation only charges a certain production batch, or also a specific job, and will also be used when the product or service being sold consists of separately identifiable parts.
For example, this contractor company also uses the order cost calculation for each house to be built.
In much the same way, public accounting firms and law firms will use order cost calculations to be able to calculate the cost of each audit, or any related case.
This process will assign costs to each process, or work center, in the production cycle and then calculate the average cost for all units to be produced.
This process cost calculation is often used when similar goods and services are produced in bulk and the separate units cannot be easily identified.
For example, beer companies accumulate costs that will be associated with various processes such as dozing, pre-fermentation,
Filtering, correcting the production of a particular batch of beer, and then calculating the total average per-unit cost for that particular product.
Definition of Code List
Accounts and estimates are records to accommodate transactions that will be recorded in a journal. The term ledger or ledger is a designation for the various estimated accounts.
Well, we often see a collection of estimates or accounts that we often see are numbered and also for groups of similar accounts will be numbered in sequence.
Also Read: Understanding Capital Structure
Requirements for making a chart of account
Things that really need to be considered in creating an account code include:
- Numbers must be unique (which means that each number can only be used for one approximate account)
- The estimated account will be included in the group or sub-group. for example, cash, receivables and equipment are included in current assets.
- The estimates that will be related should be arranged sequentially. for example: accounts receivable with other accounts receivable.
- The numbering will be not too strict in the company, the reason is that it will make it easier if there will be the addition of a number of new accounts. for example: load groups will be numbered 600. 605 freight loads. 610 other expenses. If an addition occurs, it can also be inserted between 605 -610.
- Account names should be brief and clear. For example: The burden of official travel is better than the expense of traveling out of town for the director.
Processing (Costing process)
The costing process is an accounting method which will track and also accumulate direct costs, and allocate these costs indirectly from the manufacturing process.
This cost will be incurred for the product, which is usually in large batches, which may cover the month’s production. In the end, costs must be allocated to individual units of product.
It will also give an average cost for each unit, and is the opposite of Job costing which tries to measure the individual costs of producing each unit. Process costing is also usually a significant chapter.
The costing process is where the type of cost operation will be used to be able to ascertain the cost of the product in each process or also at the manufacturing stage.
CIMA defines process costing as “The cost method is applied where goods or services result from a continuous or repetitive sequence of operations or processes.
Costs are averaged over the units to be produced during the period ”. Process costing is suitable for industries which will produce homogeneous products and also exist where production is continuous flow.
Also read: Understanding cash flow
A process can often be referred to as a specific organizational sub-unit that has been defined for the cost of collecting a purpose.
The characteristics of the process cost system that will be applied to manufacturing companies are as follows:
- The production system is a production system which will run continuously
- Products that can be produced are mass production and are also uniform
- The purpose of production is to be able to form inventory
In the accountability report for a process cost system, it consists of 3 parts, namely:
- This first section will contain information on production data which is also a physical flow report. It should also be understood that the meaning of unit in this section is equivalent unit.
- The second part contains information on the total accumulated costs which will be the responsibility of the Production Department Manager concerned.
- The third section contains information on how the total costs are distributed to the value of work in process and finished products.
In this process cost system, at the end of the first period there are still goods in process at the end of the period. Where goods in the final process of the first period will be treated as goods in the initial process in period 2. In other words, in the second period there is already an item in the
initial process , so that for the allocation of production costs there are 2 types of alternatives to choose from, namely: - First in first out method
- Average method
- The equivalent unit is where the number of finished units that will be produced using a material, workers, overhead will be incurred during a period which is available to complete the unit.
Sensitivity Analysis
This sensitivity analysis can also be performed using several techniques. The basic technique is to be able to change one or several assumptions and also to be able to see whether the impact of these changes has a result.
In financial reports, for example, sensitivity analyzes will generally be based on changes in assumptions regarding discounts, interest rates or exchange rates, prices, pension benefits, etc.
Also Read: Product Cost Classification
However, if the profit forecast is more sensitive to changes in the assumptions of other factors such as development or operational costs, the sensitivity analysis should be prioritized on changes in assumptions.
for example, if we were talking about price sensitivity if company ABC’s profit was $ 15,000,000 and revenue was $ 100 million, then the price sensitivity would be $ 15,000,000 ÷ $ 100,000,000 x 100% is 15%.
In other words, if the firm is going to lower its price by 15% and all other assumptions remain the same, the firm has a zero profit.
The sensitivity of this can indicate how a relative increase or decrease will impact cash flow. For example, if
ABC Company has a loan of $ 20,000,000 with an interest rate fluctuating by an average of 4%, then an interest rate of 5% which would reduce annual income by $ 1 million (that is, 20 million would be multiplied by 5%).
As another example, if ABC Company’s trial balance is 5 million Euros, a 10% strengthening (weakening) Euro will also result in a $ 0.5 million ($ 5,000,000 multiplied by 10%) increase (decrease) in profit.
In the case of pension costs, this sensitivity analysis will be provided to the company by the actuary and it can also be interpreted as follows: “Total pension costs are $ 9,000,000 with a discount rate of 4.3%.
Then an increase in the discount rate will also reduce pension costs, and vice versa. As an indication of sensitivity, a 1 percent increase in this assumption would also reduce pension costs by approximately $ 0.85 million.
A 1 percent increase in the discount rate for the same plan would also reduce pension costs by about $ 0.19 million.
