COMMERCE 2AB3 Lecture Notes - Direct Labor Cost, Indirect Costs, Cost Driver
8 Mar 2014
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Document Summary
To calculate the cost of a product or service, we need to do two steps: (1) cost. Accumulation and (2) cost assignment of each cost item spent to cost objects. Cost accumulation is the process of collecting and recording the costs incurred by a company in performing certain services or producing certain product(s). The two main systems for cost accumulation are: (a) job-order costing system and (b) process costing system: job-order system is appropriate where products or services are produced to customer specifications. In job-order system, costs (i. e. , direct material, direct labor, and factory overhead) are accumulated by job or order: in process costing system, costs are accumulated by a process or a department. It is appropriate where identical products are mass produced in a sequence of processes or departments. Because of the complexity of most manufacturing operations, companies need to establish a system to track costs so they can properly determine product costs.
