Page 144 - Finance for Non-Financial Managers

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Cost Accounting
costing. The challenge comes in several forms:
• Convincing workers to accurately measure time on a job
or to check out the raw materials they will use—tasks that
are not often to their liking and not always in the skill sets
for which they were hired.
• Convincing workers that the purpose of the detailed time-
keeping is to cost out the products, not to keep track of
how much downtime they have on the job.
• Convincing supervisors that the time their workers spend
reporting time and materials data instead of working on
another job is productive.
• Teaching accounting departments how to collect the infor-
mation accurately, use it properly to calculate the labor
cost component of the company’s products, and then
produce meaningful reports for management.
These are the fundamental data collection tools of job cost
accounting:
•A bill of materials that enables the company to identify
the materials required to manufacture a particular job.
• Timecards or timesheets for manufacturing employees
who work directly on products, broken down by product

Job costing Collecting costs for a manufacturing process
that’s geared to producing products in small lots, or jobs,
and assigning costs to those jobs. Jobs may be customized
to the customer’s requirements, as in a machine shop, or small lots of
products for selling later from stock.
Process costing Collecting all costs incurred in a continuous
process or processing department, and then averaging these costs
over all units produced in that department.This is a mass production
kind of operation, such as might be used in making chemicals, gasoline,
or textiles. It’s different because the nature of the product is different.
Instead of specifically identified lots of production, there’s a continuous
flow, with the final output being complete only when the process is
stopped, rather than when the order for X units is filled.