Manufacturing Cost Accounting

Manufacturing cost accounting refers to the process of gathering, maintaining and reporting product and plant costs. Every plant uses it no matter how small the operation is, however, some plants use it very informally.

MRP System and Cost Maintenance:

  • Normally a plant will have MRP (manufacturing resource planning) software to run the cost system.  This system also runs the entire plants information needs.

  • The Cost Accountant either reviews or maintains the costs in the system.  These costs are:

    • Direct Labor
    • Material Cost
    • Burden

  • Usually the materials department will maintain the bill of materials (BOM).  The BOM contains all the purchase costs and amounts of material for each part.

  • The direct labor is collected from time cards.  Either the direct labor employees or a clerk will enter the time into the system.

  • The burden costs are labor and plant costs that the Cost Accountant allocates to a job or product.

Cost Reporting:
Manufacturing cost accounting illustration
  • Management requires many different cost reports so they can make informed decisions.

  • The Cost Accountant creates reports from the MRP system.  She will also create many unique reports as required.

  • The cost reports will be used to:

    • Notify Management of production problems.

    • Help cost efficiency efforts

    • Be used as a guide to bid on new work.

    • Be used for budgeting and business plans
Manufacturing cost accounting can be the most difficult of all accounting, due primarily to the large amount of data that is collected and because of the requirement for detail needed for cost analysis.