Cost Estimation Methods And Costing Systems

1.the scope of cost definition,

2.time of calculation 

3.the calculation style.

• Full Costing Method
• Normal Costing Method
• Variable Costing Method
• Direct Costing Method
• Throughput Costing Method

Only the variable manufacturing costs are treated as product costs under variable costing method, variable non-manufacturing costs are excluded despite their variable nature.

Normal costing method also suggests covering all manufacturing factors as product cost in parallel to the full costing method; however, in normal costing method costs of indirect manufacturing factors are allocated to products depending on the utilization rates of these factors (Lazol, 2011:
133).

Throughput costing method, which is also called as super variable costing, does not have widespread use in practice. Under this method, only the direct material cost is the product cost, while all other manufacturing related expenditures are considered as period expenses to be reported in the income statement.

In actual costing method, product cost is calculated at year-end by using the cost data that incurred during the year.

In order to calculate the product cost, it is necessary that the production is completed and all related expenditures have incurred.

In standard costing method, costs of all manufacturing factors (direct materials, direct labor and manufacturing overhead) are based on the
standards that are previously determined using scientific techniques and methods.

• Job Costing
• Process Costing

Companies that produce unique products in single units or multiple units of a distinct product, which is called as “job” or “order”, prefer job costing system because each product requires the use of different types and/or amounts of resources (Lenon et al., 2012: 227). 

Materials requisition records are the records containing information about
the cost of direct materials used on a specific job and in a specific department. On the other hand, labor-time sheets present information about the amount of labor time used for a specific job in a specific department.

Allocation rate represents the amount overhead cost allocated to jobs whenever a unit of allocation base is used/spent during the accounting period.

In normal costing method, budgeted allocation rates are used as opposed to actual costing.

After all tracing and allocation transactions are completed, the cost of the job can be calculated by summing up direct materials, direct labor, and indirect manufacturing costs.

Equivalent unit is a derived measure of output that reflects the number of completed units that could be produced with the same quantity of input
consumed for both finished goods and workin-process inventories.

Direct materials and conversion cost.

Conversion cost covers direct labor and manufacturing overhead costs and these two components are assumed to incur concurrently with each other
(but this is not what always happens).

1. Summarize the flow of physical units of output
2. Compute output in terms of equivalent units
3. Summarize the total cost to account for
4. Compute the cost per equivalent unit
5. Assign total cost to completed units and ending work-in-process inventory.

Peanut butter costing is the name given to a costing system that broadly averages or spreads the cost of resources uniformly to cost objects
(Horngren et al., 2015: 173)

Product-cost cross-subsidization is the term used to define the situation in
which over-costing in one or more products results in under-costing in other products.

Activity-based costing (ABC) is a refined version of simple costing system, with increased number of cost pools and allocation bases. In an ABC system, the whole process is considered as a chain of activities and individual activities
are the fundamental cost objects.