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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