Record to report / R2R – General Accounting – Cost Accounting
First of all, a big apology for not writing a post on the core topics of our blog for over a week. I personally had some challenges back home and also, I have a solo art exhibition coming up from 18th April – 23rd April, which is eating up a lot of my time. There will be some disruptions on FAO posts till 23rd. If I am unable to write a post, I will surely share some good article.
In our last post on cost accounting, we had seen a situation where a cost accounting process would even apply to the service industry.
What will the process look like?
Key steps in the process would be:
- Identify the sources of cost inputs for the unit concerned. Ideally, in most situations, the unit would be a critical component.
- Segregate the direct costs and indirect costs / overheads.
- Identify allocations of head office / central costs that need to be taken into account for this.
- Build a process for collecting inputs.
- Take management approvals on the policies in vogue for cost allocations.
- Build / improve the model for logical allocation.
- Suggest / obtain sign off for the handling of one-off / unusual cost items.
- Once the inputs are received, collate data into the allocation model.
- Compute the per unit weighted cost, based on the rules specified by the business.
- Share with the unit’s cost accountant for approval and release.
In this process, a lot of management interaction is needed, as each company will have different policies for computing the product or service cost.
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