Cost Accounting Summary

A LITERATURE/THEORETICAL REVIEW OF PROCESS COSTING

Accounting is referred to as the process of recording, classifying and summarizing business transactions in terms of money, preparing financial reports as well as the interpretation of these reports. The business accounting system can be divided into three parts, financial accounting, cost accounting and management accounting. Cost accounting is an accounting information system that records, measures and reports information about costs which is used in decision making and performance evaluation. There are mainly two types of cost accounting, job order and process costing. The focus of this literature review is on process costing and its features.
According to Weygandt, Kimmel and Kieso (2012)

When studied in any reasonable depth, however, process cost is among the most difficult topics covered in cost accounting courses.” They go on to add that the contradiction of being easy to introduce as a concept and being difficult to understand when studied in depth can be traced to a students’ inability to separate relevant data from irrelevant data and the inability to organize a maze of interrelated data into usable form. As is frequently true when dealing with accounting matters, the concept may be relatively simple however the application of the concept is

The first one being weighted average costs which assumes that all costs regardless of if they are accumulated in a previous period or the current one are grouped together and assigned to produced units. The weighted average method is commonly used in instances where there is no standard costing system. The second is the FIFO method which means “first in first out”. FIFO costing is utilized when there are significant changes in product costs from each period. When this occurs management needs to be aware of the new costing levels so it can re-price products appropriately, determine if there are any problems with internal costing that requires a solution or if there is the need to alter manager performance-based