Sistemas de costos: órdenes y procesos

Main ideas and lessons

• The video explains cost management “costing systems” by focusing on how manufacturing/service costs are accumulated, specifically:
  • Job order costing (including service order costing)
  • Process costing
• It frames the topic as relevant to any business, not just large manufacturers (e.g., budgeting at home, corner stores, bakeries).

• The core distinction is:

  • Job order costing: used when production is based on specific customer orders (often in batches or customized units).
  • Process costing: used when production is continuous and output is homogeneous, flowing through departments/processes.

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Job order costing (order costing / service order costing)

When it’s used

• When production is based on specific instructions from customers.
• Common when work is done in batches or for custom requirements (diverse production, responding to particular orders).

Key mechanism: cost accumulation by job/work/service order

• Create/open a job order for each customer (each cost object).
• Maintain a cost sheet for each order.
• Accumulate costs to the specific order, not to the whole department broadly.
• Costs are accumulated as the three production cost elements:
  • Direct materials
  • Direct labor
  • Manufacturing overhead (indirect manufacturing costs), allocated to the order (prorated)

Illustrative examples given

• Printing company

  • Customer A wants high-quality invitations (custom paper/inks).
  • Customer B wants flyers (cheaper materials).
  • Even if “similar effort” exists, costs differ because requirements differ → different order costs.

• Mechanic’s shop / dealership service

  • A service order is opened.
  • The shop computes materials + labor + a portion of overhead (e.g., electricity/phone/water), typically allocated proportionally.
  • Different customers (e.g., different car types) can lead to different costs and selling prices.

Cost flow concept (as described)

For each order:

• Allocate materials to that order.
• Allocate labor to that order.
• Allocate overhead portion to that order.
• When finished, transfer to the finished goods warehouse (or deliver in services).

Main advantage implied

• Pricing and cost tracking can reflect each customer’s specific requirements, so selling price can differ per order.

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Process costing

When it’s used

• When there is a large number of homogeneous products.
• Production occurs continuously and uninterruptedly through a series of processes/departments.
• Customers do not usually specify detailed custom features; the product is made to match market demand patterns (e.g., “most customers want strawberry yogurt”).

Key mechanism: cost accumulation by departments/processes

• Costs incurred during each period are allocated through departments as the product moves along.
• Fundamental objective:
  • Determine unit costs based on:
    • Total costs incurred in each department
    • Equivalent production / partially completed units
• The output of one department becomes the input (raw material) of the next.

Key cost flow concept (“snowball” accumulation)

• Costs accumulate as the unit moves from department to department, increasing the unit cost.
• The video compares this to a snowball rolling downhill:
  • Each department adds more cost → later departments build on earlier costs.

Production department structure (given)

• Example multi-department route:
  • Department 1 → Department 2 → Department 3 → finished goods
• Costs added in each department include:
  • Direct materials
  • Direct labor
  • Manufacturing overhead
• Additionally, each department carries forward the cost received from the previous department.

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Types of process flow described (detailed list)

1. Sequential (serial) product flow

   • You cannot skip a department.
   • A unit must be completed in one step before it moves to the next.
   • Example used: cakes
     • Mixing → molding → baking → packaging

2. Parallel product flow

   • Multiple activities/departments can run at the same time.
   • Outputs are later brought together in a combination step.
   • Example used: computer manufacturing
     • Cutting (external parts) and another department for internal parts occur in parallel
     • Both streams are combined later (combination department), then packaging

3. Selective product flow / by-product style (as introduced)

   • Starts with a common input (e.g., oil).
   • Produces multiple outputs (e.g., gasoline, diesel, kerosene).
   • There are:
     • Joint costs up to the split point
     • Then separate additional costs in later departments for each product

The video notes it will cover more on “main products and by-products” later.

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How process costing determines unit costs (methodology steps)

Department-level allocation objective

• Allocate manufacturing costs incurred in each period to departments.
• Use departmental cost information to compute unit costs.

Equivalent units / cost allocation approach (described)

• Determine:
  • Equivalent production units (accounts for partial completion)
  • The costs incurred in the department:
    • Direct raw materials
    • Direct labor
    • Manufacturing overhead
    • Plus cost from the previous department (carry-forward)
• Then compute unit costs by dividing:
  • Total costs to account for / equivalent units

Unit cost categories (as described)

• Unit cost for:
  • Finished and transferred units
  • Units still in process
• Units in process are valued at a stage of completion, so their unit cost is not the same as a 100% complete unit.

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Work-in-process accounting logic (units to be accounted for vs. accounted for)

Core definitions used

• Units to be accounted for
  • Initial work in process inventory
  • + Units started/added
  • Often described as: “available units”
• Units accounted for (where they end up)
  • Transferred out to the next department / finished goods
  • Ending work in process (still incomplete)

Accounting balance (as described in concept)

• If available units = initial + units added
• Ending in process remaining = given
• Then the remainder must be transferred out.

Numerical example provided (simplified)

• Given:
  • Initial WIP = 2,000
  • Units placed in process = 6,000
  • Ending WIP = 3,000
• Then transferred/finished = 5,000

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Production report in process costing (detailed checklist)

Purpose

• Summarize production activity in each department.
• Analyze activity generally using multiple schedules/sections (the video says four parts).

Main components the report computes (as described)

• Production volume (units/quantities)
• Equivalent units (equivalent production)
• Costs incurred, including:
  • Direct raw materials
  • Direct labor
  • Indirect manufacturing overhead
  • Cost from the previous department
• Unit costs, typically separating:
  • Unit cost for finished/transferred units
  • Unit cost for units remaining in process
• Evaluation of output categories, including:
  • Finished and transferred units
  • Finished but not transferred units (not common, but possible)
  • Units still in process

Normal vs abnormal shrinkage (important concept)

• Normal shrinkage / normal waste

  • Inherent to the process (expected)
  • Included in product cost (charged appropriately)

• Abnormal shrinkage / abnormal waste

  • Due to avoidable issues/errors
  • Handled differently from normal; the video states it is charged differently to the customer because it results from company fault.

“Nine cases” note

• The video claims there are approximately nine cases for preparing production reports (not exhaustive).
• It notes other tutorials cover those cases for practice.

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Conclusion / positioning of theory vs practice

• The speaker emphasizes that theory helps understanding, supports innovation, and prevents repeating errors that come from incorrect practice/experience.
• The video ends by promising practical examples in later tutorials and splits them into cases involving waste/mix scenarios.

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Speakers / sources featured

• Speaker: Mónica Hernández Madrigal (host/instructor)
• Sources referenced: “some books” on costing (exact titles/authors are not provided in the subtitles)