Module 2 presents three (3) accounting systems to allocate costs to products and services:

1. Job order costing
2. Process costing
3. ABC - Activity Based Costing

All these systems are applicable to the allocation of general manufacturing costs (factory overhead) in any of the two (2) costing systems. The first two (2) systems are covered in Chapters 2 and 3 of the textbook, Managerial Accounting Tools for Business Decision Making, by authors Weygand, Kimmel, and Kieso (2015), 7th edition. The approach of costing by (ABC - Activity Based Costing) is covered in chapter 4 of the same book.

The purpose of this module is to explain how costs flow through the manufacturing process until the product or service is completed and how they are reflected in accounting records and reports. It is not required that each and every one of the entries in a journal be made with their debits and credits in the accounts, but rather that the flow of costs in the costing systems be explained, and their effects on the accounts, records, and accounting reports. The cost system measures, records, and reports the costs of products and services. Through the data accumulated in accounting records and accounts, the total costs, and the costs per unit of each product or service are determined.

The accounts are fully integrated with the internal operational reports used by managers and with the company's financial reports.

Production order costing system (Job Order Costing)

The procedures by orders and by classes must be adapted to the operational characteristics of each company, as well as the processes.

The production order procedure is the set of methods used in the control of production operations, generally applicable to industries that manufacture their products through assembly, batch and other characteristics. The control procedure of productive operations by production orders is one that allows separately gathering each of the cost elements for each work order, finished or in process (Parra Valenzuela, 2009, p. 86).

This control procedure is used mainly in industries that perform special work or make products to order (not necessarily or exclusively), and also in those in which it is possible to separate the costs of direct material and direct labor used (cost direct) in each production order. Typical examples of this nature are: tailoring workshops, shipyards, ornamental metal works workshops, screw and nut factories, furniture, assembly, toy, printer, etc. (Parra Valenzuela, 2009, p. 86).

Process costing system

This procedure is the one used in those industries whose production is continuous, mass and uniform in the elaboration of the product, where there is not a great variety of elaborated articles; In this procedure, the details of the unit produced are lost, for which the production is quantified in meters, liters, kilos, etc. And referring the manufacture to a certain period (Parra Valenzuela, 2009, p. 112).

The industries that are controlled by processes are divided into:

Industries whose product development is carried out in a single process.

Industries that transform direct material in more than one process. Some examples are: transformation industries; foundations; cement factories, paint factories, ice factories, bakeries, bottling factories, etc.; minor operations: coal, sulfur, sand, stone, etc.; and public services: electricity, telephones, gas, etc.

In the same way, there are also industries in which, in the first process, all the material is used and, in the following ones, only the other two (2) elements of the cost are involved. There are others in which the material is added in two (2) or more processes. Examples of them are: steel foundries, glass, brewery, match, cement, paper, petrochemical, etc. (Parra Valenzuela, 2009, p. 112).

Activity Based Costing (ABC)

Activity Based Costing (ABC) is a system for assigning general manufacturing costs (factor and overhead) to multiple activity cost pools. It supplements, does not replace job or process costing, and segregates overhead costs into various cost groups by activity in order to provide better information. Also, use cost drivers (cost drivers) to assign the costs of groups by activity (cost pools) to products or services.

Activity-based costing involves the following steps in allocating overhead costs:

1. Activities are identified and classified, and overhead costs are assigned to groups of activities (cost pools).
2. Cost drivers that have a strong correlation with the accumulated costs in the groups of activities are identified.
3. The overhead application rate is computed for each cost driver.
4. Each cost pool is assigned to products or services using the application rate for each cost driver.

Analyze and answer the following questions:

1. Which part of the material in this module did you learn the easiest?
2. At what type of cost did you face the most difficulty or confusion?
3. Include at least three (3) bibliographic references in the writing.