Importance of Costing System in a Business

Importance of Costing System in a Business
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Importance of Costing System in a Business
A costing system is a scheme designed to observe expenses that occur during business operations. The systems operate through a set of scheduled reports, controls, and processes that combine and present to management the total cost and profit incurred in a business. In this essay, I will compare three costing systems (Özyapıcı et al.,2017). I will come up with the best from the three comparisons, which will be appropriate and suitable at Cool Air international company. The costing systems include; Job costing, Activity-based costing, and lastly, Process costing. I will highlight both their advantages and disadvantages, which suites the company best by reducing its costly operations.
In this scheme of activity–based costing, indirect and overhead costs are assigned. They include utilities and salaries which results to services and product. This costing account is mainly used in manufacturing companies since it improves the constituency of data costly. It accurately identifies the cost incurred by a company during the production process. It helps a company form a better pricing scheme based on the accurate cost it has incurred (Eidgahi et al.,2018). In this costing system, there is a process of how the cost is calculated. Based on Cool Air international company, I will first identify the activities which will be carried out when making the product; I will break the activities into small pools. I will assign each pool to single individuals. I will calculate the total cost by doing it per individual and multiply it by the total number. This costing system is centered on activities that occur on certain events with a specific goal aimed at making a profit within a duration of a given time. Regardless of this costing system can be implemented on any company, it cannot favor Cool Air international company that much. Cool Air is an international company that continuously carries its business without stopping. However, when this costing system is implemented in this company, it will work for a short period since it favors events with specific goals but for a short period. After a short period, it will need to be implemented again to continue accounting for the costs and profits gained. This makes this accounting system not favorably be implemented at Cool Air Company.
A job costing system is a costly system that combines information about the cost incurred in a production service of a specific job. In Cool Air international company, the cost is always repayable. The data combined in the job costing system is always beneficial since it helps in calculating the exact cost incurred during the job service. Additionally, the costly information collected will also be used in estimating the price of the products (Quinn et al., 2017). This system combines three types of information: direct materials, direct labor, and overhead materials. Based on direct materials, this kind of information will be of great significance to Cool Air Company. The company continuously calculates the cost of material used during the job performance since it mainly deals with the manufacturing process of blades, remote control, fan housing, motor, and power switch. Another information that the job costing system combines is the direct labor information. The information may be beneficial in the company of Cool Air because the company records the total cost of labor incurred in the place of work, which is always compared to the total profit the company makes. The last type of information that the job costing system collects is overhead information. Cool Air Company also allocates labor per head, and later, after production is over, calculate the total labor by multiplying per head. This information helps them figure the entire labor incurred through the whole process of production. However, the job costing system has its advantage when implemented in Cool Air company. The overhead information is not much practiced over there, something which makes at some point be out looked.
Process costing is a type of ...