Costing systems and capital investments

An organization must, therefore, be aware of those products that profitable and those which are not, to achieve this, the right cos of the material has to be estimated. In addition, a material costing system aids in the estimation of the inventory finished goods inventory and the work-in-progress inventory which play a major part in the preparation of financial statement of an organization (Schaltegger & Burritt, 2017). The costing system is also used by the organization for the purpose of tactical plans and future investment creating strategic. Costing types are divided into two major types; the process costing and the job order costing. An organization accumulates information and cost by using one of them or adopting a hybrid approach to march with the needs of the organization.

The former costing system allocates a single overhead rate and then distributes it to each and every department and job. The latter, however, encompasses accumulation of rate of activity and applying of the overhead costs to goods as per activity usage. Activity-based costing was developed as a response over the concerns that overhead costs were seldom allocated in a fair manner. Advantages and disadvantages of process costing and job order costing Reporting Process costing is of merits to managers because it gives them the upper hand in ascertaining the same qualities in all departments and compare performance over a period of time. Job order costing, on the other hand, enables the managers the ability to be able to follow the performance of teams and individuals in terms of efficiency, productivity and cost control (Schaltegger & Burritt, 2017).