COST SYSTEM

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Cost System
- One wherein flow of costs is accounted for in detail so that unit costs and
inventory costs can be promptly determined.
- It is effective when it ensures that the company benefits from all its
expenditures, that is, costs incurred contribute to the production of the
desired quantity of goods and services.
- May be designed to accumulate costs by products or by departments or
processes.
- Perpetual inventory method is used – involves the use of perpetual records
showing the flow of costs or resources. o For a manufacturing firm, cost of
raw materials used, cost of completed units and cost of goods sold can be
readily determined and responsibility for inventories can be pinpointed based
on records kept. o The controlling accounts and the corresponding
subsidiary records are as follows:
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Other controlling accounts

- They may be used under both periodic and perpetual

inventory methods because they do not affect the
inventories. They are:
o Factory overhead control
o Selling expenses control
o General and Administrative Expenses Control
o These are supported by subsidiary records or
analysis sheets.

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Chart of Accounts, Cost System

- Similar to that under the non-cost system with

the exception of the account titles affecting
cost of goods manufactured and cost of
goods sold.

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The Factory Ledger

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Transfer Voucher

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 JOB ORDER
COSTING AND
PROCESS COSTING

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