- Cost systems based on historical and predetermined costs
- Subclassification of default and historical costs
- References
The historical and default costs are a cost classification based on the time of calculation. Cost is the sacrifice of resources to obtain a benefit or any other resource.
For example, in the production of a vehicle, material, electricity, the value of the useful life of the machine (depreciation), labor wages, among others, are sacrificed.
In this sense, historical costs are those that are incurred during a certain period of time in the production of goods and services.
These are determined at the end of that period. On the other hand, the defaults are future costs that are determined before production, based on a specification of all the factors that affect the cost.
Cost systems based on historical and predetermined costs
A cost system is designed to monitor the costs incurred by a business. The system is made up of a set of forms, processes, controls and reports designed to complement and inform the administration about income, costs and profitability.
This information is used to make adjustments to improve profitability, create strategic and tactical plans, and multiple other purposes.
On the other hand, there are two main types of cost systems. One of them is for work orders, where materials, labor, and overhead are accumulated for a single unit or job.
In this case, the cost accumulation process is highly detailed and labor-intensive. The other system is by processes.
With this mode, materials, labor, and overhead are compiled together for a complete production process, and then assigned to individual production units.
These two types of systems can determine costs after they have been recorded in the accounting books.
It is said, then, that it operates on a basis of historical or real costs. Instead, when either system anticipates costs, it operates on a predetermined cost basis.
Subclassification of default and historical costs
Historical costs can serve several sub-classifications. In general, they can be divided between product costs and distribution costs. The former are those incurred to acquire or manufacture a product.
These costs generally consist of direct materials, direct labor, and manufacturing overhead. The latter are not part of the manufacturing process, and include marketing, sales, and administration costs.
For their part, the predetermined costs are subdivided into standards and estimates. Standard costs are established for the purpose of controlling future actions.
They are determined on a scientific basis, and must be established with respect to each cost element. In addition, they are used as a regular accounting system from which variations are determined.
The estimates, meanwhile, are made for the purpose of setting prices. In its calculation, past records and opinions are taken into account. And they are only used as statistical data.
References
- Arora, MN (2012). A Textbook of Cost and Management Accounting. New Delhi: Vikas Publishing House.
- Rachchh, M and Rachchh GA (2014). Cost Accounting. New Delhi: Vikas Publishing House.
- Accounting Explained. (s / f). Cost and Cost Classifications. Retrieved on December 1, 2017, from accountingexplained.com.
- Accounting tools. (2012, October 26). Costing system. Retrieved on December 1, 2017, from accountingtools.com.
- Sinisterra Valencia, G. (2006). Cost accounting. Bogotá: Ecoe Editions.
- Accounting For Management. (s / f). Product costs and period costs. Retrieved on December 1, 2017, from accountingformanagement.org.
- Rajasekaran, V. and Lalitha, R. (2010). Cost Accounting. New Delhi: Pearson Education India.