COSTING OF

MANUFACTURING
OPERATIONS

DEPARTMENTAL AND ABC

TECHNIQUES
COST ACCOUNTING SYSTEM
It consists of techniques, personnel,
forms and accounting records used to
develop timely information regarding the
cost of providing products or services

Divisions of Management Accounting:

Cost Accounting , Managerial Planning
Why need for costing ?

1. For Pricing purpose

2. For Income measurement

DIRECT COSTS INDIRECT COSTS

FULL COST OF THE UNIT

MANUFACTURING COSTS
DIRECT COSTS INDIRECT COSTS

1. Direct material Indirect material

2. Direct labor Indirect labor
Equipment repair
Depreciation
TYPES OF COSTING
Costing is the process of charging costs against each unit.

FULL COSTING MARGINAL COSTING

(Absorption Costing)
 ACCOUNTING FOR
MANUFACTURING OPERATIONS

Manufacturing Manufacturing Manufacturing

Inputs process Outputs

Material Work in Finished

Direct Progress Goods
Indirect PPU Inventory
 FLOW OF COSTS
Raw material a/c
Cost of Direct Cost of direct
Materials material used

Cost of Cost of indirect

indirect materials used
Materials

Wages Payable WIP Finished Goods Cost Goods sold

Cost of Cost of direct Cost of direct Cost of Cost of Cost of cost of
Direct labor labor used materials used completed Completed products products
products products sold sold
Cost of Cost of indirect Cost of direct
Indirect labor used labor used
Labor
Applied factory
overhead
Factory Overhead

Cost of indirect Applied factory

Labor used Overhead

Cost of indirect
Materials used

Utilities
Depreciation
 Cost of Goods
Finished Goods
sold

PPU

Balance Sheet Trading Account

Assets Liabilities Purchases Sales

Matching Principle
Manufacturing costs should be reported
on the income statement only and to the
extent to which they match to the sales
revenue.

Builder can not show any cost of houses built in his

trading a/c unless they are sold
FULL COSTING
1. Single Product ( Process costing )
Produce steady stream of identical products
like Oil refineries, flour mills and breweries

1. Multi-product ( Job costing )

Process of charging full cost when products
differ from each other.
 Job Order Costing
Job Order cost Sheet

It is a subsidiary ledger showing the manufacturing costs charged to

each job.

Costs in these sheets in respect of all jobs being carried are debited to
WIP a/c

Upon completion of each job the respective amount would be

transferred from WIP a/c to the Finished Goods Inventory a/c
 Job Order Cost Sheet
 

Product Description Kit Kate Chocolate Bars Job Order Number 101

Notes Rush Order !!! Units required 250

Special Sizing &Packaging Date Started Jan 10
Date completed Jan 1

Direct Materials Direct Labor Factory Overhead

Time
Date Request Card Cost
Number Cost Number
Rs 84 125 hrs @ Rs 3.16 = Rs
380
541 Rs 350 96
10-01 381 395
96
382
84
383
90
384
96
387
72
388
96
389
Rs 96
400
549 Rs 735 90
11-01 401
96
405
84
407
96
408
78
409
96
411
96
412

Rs. 1085 Rs 1500 Rs 395

Summary of Costs
Direct Material Rs 1085
Direct Labor Rs 1500
Factory Overhead Rs 395
TOTAL JOB COST Rs 2980
 How a company applies raw material
cost to jobs ?

Raw material requisition form and summary

From Purchases a/c to WIP a/c as the work on any job progr
How a company applies Direct labor
costs to jobs?

Time Cards and Tickets

Transfer from Direct Labor Cost a/c to WIP a/c

How a company applies factory
overhead cost to jobs?
These costs are for the general benefit of all
manufacturing activities/jobs hence are difficult to be
charged.
Basis of Charging indirect costs in
Multi-product operations
1. Departmental Basis

* Cost center: is area or activity for which

expense is identified ( Department )
* Direct costs are allocated and indirect
costs are apportioned
* Costs of service centers are apportioned
to production centers
Co Machining
Preparation Finishing Finished
Costs department
department department goods store
accumulated

DEPARTMENTAL BASIS OF FULL COSTING

Activity Based Costing
1. Cost Drivers

2. Cost Pools

Why preferred ?
Job Costing in Service Industry
Gather costs of serving a particular customer
The overlap of Managerial and
Financial Accounting
Accounting for manufacturing operations is a
typical example