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Introduction to Cost Systems

Cost systems are used by companies to accumulate and track costs for a manufacturer. This lesson will review two types of cost systems: job order costing and process costing. In a job order cost system, costs are tracked by the specific orders (jobs) that are produced. Manufacturers that might use a job order cost system include home or custom car builders. The manufacturer tracks the costs to build each home or car as it is built. In a process cost system, costs are accumulated by department or process within the factory. Manufacturers that might use a process cost system include chocolate makers and soft drink bottlers, which would track costs by department as the product is being made.

Lesson Objectives

After completing this lesson, you should be able to do the following things:

• Identify the inventory accounts in a job order and process cost system.
• Track costs as they flow through a job order cost system.
• Calculate gross profit in a job order cost system.
• Identify the costs in a process cost system.
• Compute equivalent units of production.
• Allocate costs in a process cost system.
• Calculate gross profit in a process cost system.

Lesson Readings and Activities

By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 11 Course Schedule.