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Cost Accounting System: Financial Management

Write 1,500- to 2000-words identifying the specific cost accounting system your organization utilizes (must be healthcare organization) and how it uses the accounting information for financial management. You must include the following:

Descriptions of the cost accounting system used in your organization
Pros and cons of this cost accounting system
Descriptions of how your organization uses the accounting information for financial management improvement recommendations for your organization's accounting system
Include at least five peer-reviewed references
Format according to APA 6th standards

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Descriptions of the cost accounting system used in your organization
The cost accounting system used in my organization is the job order costing system. This system is used in my organization because the company that I work for makes plastic molded toys. There are several types of toys made in my company and this method of costing is suitable for such production. The job order costing system is used in my company because the costs can easily be traced to the type of toy being made (Fayek, A. R. 2000). The costs are then divided by the number of units of toys made in the job. This gives the average cost per toy. This method helps my company to price the toys properly.

In my company, since the toys are different, the costs are typically different. The result is that cost records are maintained for each toy. For example, at a point in time, there are typically seven different types of dolls being made. The company separately keeps records for each type of dolls made. The manufacturing costs are divided into three categories for each product. These are direct materials, direct labor, and manufacturing overhead.

Direct costs are measured by preparing a bill of materials. This document lists the type and quantity of each material required to make one unit of a 'standard toy'. Each toy has a different bill of materials. The direct labor is the cost of labor that is traced to a particular toy. The labor charges that cannot be directly traced are added to the manufacturing overhead. The manufacturing overhead is included with direct labor on job cost sheet since manufacturing overhead is also a product cost. Manufacturing overhead is assigned to the units of each product (Back, W. E., Maxwell, D. A., and Isidore, L. J. 2000).

The procedure used in job costing is to calculate the costs involved in the manufacturing of each type of toy. The manufacturing overhead in our firm is applied by using a rate based on the direct labor hours. Once the manufacturing overhead is added to the toy cost, the total cost for the job is determined. The objective of the job order system used in the company where I work is to assign the manufacturing costs to each type of molded toy produced. Each type of toy is different from each other. The quantity and types of raw materials used for molding the toys and the labor used in each type of toy are different. The materials used in finishing the toy and the labor required to finish each type of toy are different.

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Solution Summary

The answer to this problem explains job order costing system. The six references related to the answer are also included.