Managing Finance Essay Example | Topics and Well Written Essays - 3000 words

Managing Finance - Essay Example All costs involved in the manufacture of goods needs to be captured by the costing system adopted by a company. The method of such cost capturing depends on the manufacturer’s industry, and the type(s) of products manufactured. The two major methods of costing are (a) Process Costing, and (b) Job Costing (Martin, 2009?). Process costing is the normal method of capturing the cost in most manufacturing industries especially when the products are produced in large numbers using a sequence of repetitive operations. Typically, the products are usually identical and can not be segregated. Under this method, the cost of product is known at the end of any particular manufacturing operation. The cost of each process (or department) is captured using one of the costing techniques. The direct cost attributable to the product is calculated by department, and indirect costs are allocated to the products. Industries typically include textiles, coal, cigarettes, shoes, gasoline, steel, glass, automobiles, gas, water, electricity, etc. Job costing is used for industries where manufacturing takes place against a specific order. This method is useful for tracking the costs of unique products, which are usually manufactured to a specific order. In this costing process, costs are accumulated by jobs, lots, or batches. Industries that use this costing method include shipbuilding, construction projects, large contracts, job printing, etc. Absorption costing is also known as Full Costing. Under this system, all direct manufacturing costs, and all manufacturing overheads (including fixed and variable overheads) are allocated to the products. This costing concept is recommended for external reporting as per Accounting Standards Committee (SSAP 9). The limitation of this system is that the product costs can not be used for internal decision making as they would tend to