Cost Accounting Systems

How much does it costs apple computer to manufacture each MacIntoch?

if You are a manager at Apple Computer, you need this information. You need it to set selling prices, you need it to determine the cost of goods sold, and you need it to evaluate the efficiency of the company's manufacturing operations.

A cost accounting system consists of the techniques, forms, and accounting records used to develop timely information about the cost of manufacturing specific products and of performing specific functions. Because cost accounting systems are most widely used in manufacturing companies, the focus will be upon the use of these systems to determine the cost of manufactured products. However, the concepts of cost accounting are applicable to a wide range of business situations. For example, banks, accounting firms, and governmental agencies all use cost accounting systems to determine the cost of performing various service functions.

In a manufacturing company, cost accounting serves two important managerial objectives: (1) to determine the per-unit cost of each manufactured product, and (2) to provide management with information that will be useful in planning future business operations and in controlling costs. Unit costs are determined by relating manufacturing costs-the costs of direct materials used, direct labor, and manufacturing overhead-to the number of units manufactured.

A 'unit' of product is defined differently in different industries. We tend to think of 'units' as individual physical products, such as automobiles or television sets. In other industries, however, the number of units manufactured may be stated as a number of tons, gallons, barrels, pounds, board-feet, or other appropriate unit of measure.

Unit costs provide the basis for inventory valuation and measurement of the cost of goods sold. They also provide managers with information useful in setting selling prices, deciding what products to manufacture, and evaluating the efficiency of operations.

The phrase controlling costs refers to keeping costs down to reasonable levels. When a cost accounting system provides timely information about unit costs, managers are able to react quickly should costs begin to rise to unacceptable levels. By comparing current unit costs with budgets, past performance, and other yardsticks, managers are able to identify those areas in which corrective actions are most needed.