Cost accounting is an invaluable method that companies use to reduce costs in their company. Methods of cost accounting that are used in a particular company will depend on the type of products or services the company produces. There are four types of costs that are used:
• “Direct costs: Direct costs can be directly traced to the product. Material and labor costs are good examples;
• “Indirect costs: These can’t be directly traced to the product; instead, these costs are allocated, based on some level of activity. For example, overhead costs are considered indirect costs;
• “Fixed costs: Fixed costs don’t vary with the level of production. A good example is a lease on a building;
• “Variable costs: Unlike fixed costs, variable costs change with the level of production. For example, material used in production is a variable cost; (Boyd, n.d)
Additionally, there are different types of cost methods, listed below is three such methods:
1. Job Costing assumes that every customer job is different. Advertising agencies such as Saatchi and Saatchi of New York and construction companies such as Bechtel International Construction are good examples because every job is different.
2. Process Costing is used when products that are produced are similar. Exxon Oil Refinery and Firestone tire manufacturing plant are two good examples of process companies.
3. Activity Based Costing (ABC) is a method that assigns overhead costs to products or services based on the resources that they use. AT&T and WS Industries are examples of organizations that use ABC because of the amount of overhead and the diversity of activities in providing goods or services to the customers they serve.
In this paper, I will discuss the three different costing methods that are used in the organizations described in the above costing methods.
Job Costing Companies
Saatchi and Saatchi of New York – http://saatchiny.com/ny-us/network/about/
Saatchi and Saatchi is a “full service,…