BU247 Chapter Notes - Chapter 4: Cost Driver, Management System
Document Summary
Cost management systems measure the costs of products, services, and customers. Historically, two cost management systems, job order costing and process costing have been used to cost products and services. Cost management systems differ in the way that they assign indirect costs to cost objects. To compute product costs, management accounting systems should reflect the actual cost flows in organizations. Manufacturing costs are usually classified into three groups: direct materials, direct labour and manufacturing overhead. When manufacturing is completed, work is transferred to finished goods inventory, and costs are moved from the work-in-process inventory account to the finished goods inventory account. As goods are purchased, their cost is entered into an account that accumulates the cost of merchandise inventory in the store. Costing attention focuses on how to allocate various overhead costs to determine, for example, the cost of purchasing and selling products, or department costs. In service organizations the major cost item is usually employee pay.