Cost System

It is prepared for some regular procedures according to a logical approach, through which some jobs are formed to get the desired goal, and these costs are based on some applications of real life in addition to the scientific rules.

Main Objectives of the Cost System

  • Actual cost, whether for the activity or product.
  • Strict cost control.
  • Providing all data necessary for serving all planning purposes.
  • Administrative and political decisions.

Also read: Accounting Errors that Occur in Companies

Influencing Factors

  • The nature of the production process whose cost is to be measured and the system that is followed in it. It is worth noting that there is a group of products that have similar nature and specifications, and there are other products whose specifications differ according to the customer.
  • The organizational structure of the facility.
  • Taking into account the goals for which it was designed.
  • The period covered by costs is sometimes weekly, sometimes monthly, bi-monthly, or every three months or bi-annually.

Also read: In Detail, Find Out the Cost Drivers of the Accounting System

Steps to Complete the Costs of Activities

Five basic steps to complete the costs of activities:

Business in the Form of Activities

The multiplicity of works is one of the useless things of the facility. These activities must be grouped into groups to facilitate the identification of the various works.

Activity Cost

Writing the cost of each activity separately.

Activity Centers

This step aims to prepare costs for all centers.

Also read: A Simplified Definition of Commercial Law

The First Level of Cost Drivers

The causes used to allocate all available resources for activities, for example, the cost of the driving forces is allocated to activities that benefit in kilowatt-hours.

The Second Level of Cost Drivers

The procedure used to determine the cost of products, here is determined based on operating hours of equipment and machinery.

Also read: The Importance of Commercial Law