Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 2

A manufacturing company has records of its activity during the month in work-in-process inventory and of its ending work-in-process inventory; however, the record of its beginning inventory has been lost. What data are needed to compute the beginning inventory? Express them in equation form.

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Cost accounting system

It is a system designed to report the cost of products and services. Material, labor and overhead costs are allocated to determine unit costs. Cost accounting system comprises of various types of formats, forms, procedures, reports and records. This can be maintained independently and can be part of formal accounting system also.

Cost accounting systems are used by both manufacturing and service firms to find the unit costing of their products or service. There are two types of cost accounting systems like job order costing system used for personalized products or services and process costing system used for large size of identical products. Some companies may use combination of job order costing and process costing system to fit its needs.

Process costing system

Process costing system is used for large size of identical products manufactured in a uninterrupted flow of activities for example oil, cable etc. Production department gathers direct material, direct labor and manufacturing overheads for period and then divide the total cost by the number of units manufactured for that period to arrive at unit cost. Companies with power or chemical plants having mass production operations or companies with assembly line operations like flour mills shall use process costing systems.