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Basic Managerial Accounting Terms Used in Job Order Costing and Process Costing
Regardless of the costing system used, manufacturing costs consist of direct material, direct labor, and manufacturing overhead. Figure 8.61 shows a partial organizational chart for Rock City Percussion, a drumstick manufacturer. In this example, two groups—administrative and manufacturing—report directly to the chief financial officer (CFO). Each group has a vice president responsible for several departments. The organizational chart also shows the departments that report to the production department, illustrating the production arrangement. The material storage unit stores the types of wood used (hickory, maple, and birch), the tips (nylon and felt), and packaging materials.
Understanding the company’s organization is an important first step in any costing system. Next is understanding the production process. The most basic drumstick is made of hickory and has a wooden tip. When the popular size 5A stick is manufactured, the hickory stored in the materials storeroom is delivered to the shaping department where the wood is cut into pieces, shaped into dowels, and shaped into the size 5A shape while under a stream of water. The sticks are dried, and then sent to the packaging department, where the sticks are embossed with the Rock City Percussion logo, inspected, paired, packaged, and shipped to retail outlets such as Guitar Center. The manufacturing process is described in Figure 8.62.
The different units within Rock City Percussion illustrate the two main cost categories of a manufacturing company: manufacturing costs and administrative costs.
Continue at: https://psu.pb.unizin.org/acctg211/chapter/process-costing-overview/
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