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

Exercise 12

Rex Santos, a cost accountant, prepares a product profitability report for Jane Gates, the production manager. Much to Rex’s surprise, almost one-third of the company’s products are not profitable. He says, "Jane, it looks like we will have to drop one-third of our products to improve overall company profits. It’s a good thing we decided to look at profitability by product." Do you think Jane will agree with this approach? Why?

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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 particular needs.