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

Exercise 24

Basic Product Costing

Enviro Corporation manufactures a special liquid cleaner at its Green plant. Operating data for June follow:

Materials	$714,000
Labor	61,200
Manufacturing overhead	244,800

The Green plant produced 850,000 gallons in June. The plant never has any beginning or ending inventories.

Required

Compute the cost per gallon of liquid cleaner produced in June.

Step 1 of 4

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.

Basic cost flow model

Basic cost flow model is used as framework for recording the cost by all types of firms.

It is an inventory equation that is used to find out missing information: -

Basic cost flow model has four components like beginning balance, transfer in, transfer out and ending balance.