Accounting Information Systems: The Processes and Controls, 2nd Edition

COST ACCOUNTING REPORTS GENERATED BY CONVERSION PROCESSES (STUDY OBJECTIVE 3)

Production accounting and the related financial reporting are performed by the various accounting departments. Many of these accounting applications were discussed in previous chapters. Cost accounting, however, relates specifically to the conversion process and is therefore discussed further in this section. Cost accountants prepare production cost analyses, inventory records, and standard costing information. This information is critical in helping managers make business decisions concerning the conversion processes.

Once the bill of materials and operations list have been established for a particular product, cost accountants can begin the process of determining standard costs. Standard costs are expected costs based on projections of a product's required resources. Standard costs include direct materials, direct labor, and overhead. Overhead consists of indirect materials (such as nails, glue, and other supplies), indirect labor (attributed to production management and maintenance personnel), and costs of maintaining the production facility (such as rent, utilities, insurance, and depreciation of production equipment). Standard costs are helpful tools in controlling costs and monitoring the quality of the production process. Developing standard overhead rates is also important in the process of applying overhead to products.

During the period, cost accountants accumulate the costs of actual materials ...