Chapter 3 introduce the product costing systems. Learning objectives of this chapter include: Product costing systems, different product costs for different purposes, designing product costing systems, flow of costs in manufacturing businesses, allocating overhead costs to products,. | Chapter 4 Product costing systems Product costing systems Product costing systems accumulate product-related costs and use procedures to assign them to the final products In some businesses upstream and downstream costs are regarded as product-related Product costs are the input to the product costing system Different product costs for different purposes Product costs can include upstream, manufacturing and downstream costs Inclusion of various costs depends on the time frame and type of decision to be made Managers’ needs for product cost information will vary depending on the type of decision to be made and managers’ personal preferences continued Different product costs for different purposes Cost for inventory valuation for eternal reporting must include only manufacturing costs For long-term decision about products a wider definition may be used Product costs are used to value inventory, for short-term and strategic decision making, for planning and controlling costs | Chapter 4 Product costing systems Product costing systems Product costing systems accumulate product-related costs and use procedures to assign them to the final products In some businesses upstream and downstream costs are regarded as product-related Product costs are the input to the product costing system Different product costs for different purposes Product costs can include upstream, manufacturing and downstream costs Inclusion of various costs depends on the time frame and type of decision to be made Managers’ needs for product cost information will vary depending on the type of decision to be made and managers’ personal preferences continued Different product costs for different purposes Cost for inventory valuation for eternal reporting must include only manufacturing costs For long-term decision about products a wider definition may be used Product costs are used to value inventory, for short-term and strategic decision making, for planning and controlling costs and for cost reimbursement continued Different product costs for different purposes Current or future product costs? Current product costs are relevant for inventory valuation Future product costs may be relevant for input into some decisions Frequency of cost information? Infrequently for long-term decisions, or even short-term decisions More regularly for inventory valuation Designing product costing systems Identify the managers’ needs All product cost information may not come from a single product costing system Cost and benefits of various alternative systems must be assessed Flow of costs in manufacturing businesses When used for inventory valuation, manufacturing costs only are assigned to products, in line with Australian accounting standards Manufacturing costs consist of Direct material Direct labour Manufacturing overhead continued Flow of costs in manufacturing businesses Several manufacturing ledger accounts Raw materials inventory, Work in process .
