Financial Education | Factors affecting unit and production costs

It should be clarified that unit production costs serve as the basis for valuing finished goods and work in progress and for determining the production costs of what is sold, which facilitates the integration of accounting reports; the statement of financial position.

From this perspective, cost accountants are the set of procedures, techniques, records and reports structured on the basis of the double entry theory and other technical principles, whose purpose is the determination of unit production costs and the control of the manufacturing operations carried out.

Cost systems as the set of accounting rules, techniques and procedures for the accumulation of cost data in order to determine the unit cost of the manufactured product, plan production costs and contribute to decision making.

From this point of view, manufacturing or service companies are divided into two main industry types based on the unique condition of their product. The degree of heterogeneity of a product or service affects the way in which we attribute costs. As a result, two different cost allocation systems have been developed: process costing and job order costing.

The choice of system depends on the organizational structure of the company, the nature of the manufacturing process and the type of cost information required by the different levels of management. Many authors consider that the characteristics of production in each company are key determinants of the cost system to be used, since the cost system will depend on the type of operation. Some companies do not specifically use one of the two systems in their cost accumulation processes, but rather combinations of both.