Page 153 - BA2 Integrated Workbook - Student 2017

Preparing accounts and reports for management

Costing systems

1.1 Information provided by costing systems

Most organisations will have a costing system which is used to gather the
cost information for the organisation together. An organisation’s costing
system is the foundation of the internal financial information system for
managers. It provides the information that management needs to plan and
control the organisation’s activities and to make decisions about the future.

Examples of the type of information provided by a costing system and the uses to
which it might be put include the following:

 Actual unit costs. Could be used as the basis for decisions about pricing and
production levels.

 Actual costs of operating a department. Could be used as the basis for
decisions such as outsourcing.

 The forecast costs to be incurred at different levels of activity. Could be
used for planning, for decision making and as a part of cost control by
comparing the actual costs with the forecasts.

This is by no means an exhaustive list of the information that is provided by a costing
system. However, it should serve to demonstrate that organisations need costing
systems that will provide the basic information that management requires for
planning, control and decision-making.

1.2 Job costing

Job costing applies where work is undertaken according to specific orders from
customers. For example, a customer may request the manufacture of a single
machine to the customer’s own specification. Job costing can also be applied in
service organisations, for example the repair of a vehicle or the preparation of a set
of accounts for a client.

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