Three basic methods of cost accounting

The three basic methods of cost accounting are as follows:

Three cost accounting methods are activity-based costing, process costing and direct costing.

Activity-based costing (ABC) is a method to calculate the product cost according to each activity or order. It calculates all kinds of resources needed in the production process, such as wages, materials, energy, etc., according to the usage of specific operations or orders, and finally obtains the cost of operations or orders. Because this method can accurately calculate the cost of each job or order, it is widely used in small batch production companies.

Process cost method is a method to calculate the product cost according to the factory indirect expenses (such as depreciation, repair, property management, etc.). ) happened in the production process. This method divides the factory indirect cost into different production processes according to the time sequence of occurrence, and distributes it according to the output value ratio of each production process, and finally obtains the product cost. This method is suitable for large production companies and can provide raw data for the whole production process.

Direct cost method is a method to calculate the product cost according to the expenses directly related to the product in the production process. For example, raw materials needed in production, direct labor costs, etc. This method does not calculate indirect costs, so the calculation is relatively simple, but the cost estimation is not as accurate as the other two methods. This method is often used in small-scale production companies.