Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

16.3.3 Product Costing or Project Costing – The Interface from Order Management to Cost Accounting

Intended learning outcomes: Produce an overview on various outputs from cost accounting. Present the various transactions handled by costing software.



Carried out in the context of production order management, cost object accounting, e.g., product costing or project costing, is in essence job-order costing as described above. 

Cost accounting also performs cost object accounting. Other outputs from cost accounting are cost center accounting and cost object group accounting. To be accurate, all costing systems, in particular, costing software, require a regular input of production order data and shop floor data. These data-capturing systems provide the interface to the cost accounting system and allow accumulation of the necessary cost data.

Costing software also manages the value of work in process. The cost accounting department requires a report of every transaction associated with a production order. These transactions include:

  • Release or amendment of a production order.
  • Every stock issue. Each stock issue increases the value of the work-in-process and reduces the value of inventory by the actual costs.
  • Every execution of an operation. The actual cost of the operation is added to the value of the work-in-process. The load on the corresponding work center is reduced.
  • Every invoice for delivery of goods or external subcontracting of work. We can also allocate the costs to a dummy inventory account or cost center, rather than the work-in-process, which will then be unloaded by a corresponding issue at standard cost rates.
  • Completion of the order. The accumulated value for work-in-process for the order, together with the fixed costs, is charged either to the inventory account or directly to the expense account for customer production orders.

Transactions can be carried over every day. If cost accounting is carried out on a monthly basis, however, the data are transferred immediately before the accounting starts.

Note: At the end of every accounting period — at month’s end, for example — all the actual values (such as the quantity consumed or actual costs) must be stored temporarily in a “quantity consumed to end of accounting period” attribute. This can be accomplished by a program that is run at the end of each accounting period. In this way, when the cost accounting department receives the data on the fifth of the month, for example, it receives the values stored in the temporary attributes. This is because the actual “quantity consumed” attri­bute now contains the usage that has accumulated in the new accounting period.




Course section 16.3: Subsections and their intended learning outcomes

  • 16.3 Job-Order Costing

    Intended learning outcomes: Describe actual quantities and actual costs. Explain cost analysis. Produce an overview on the interface from order management to cost accounting.

  • 16.3.1 Actual Quantities and Actual Costs

    Intended learning outcomes: Identify actual quantities and actual order costs. Produce an overview on backflush costing. Differentiate between standard costing, normal costing, and actual costing in determining actual order costs.

  • 16.3.2 Cost Analysis

    Intended learning outcomes: Differentiate between volume variances in an internal operation, volume variances for a component, and variances in the costs per unit produced. Disclose various cost variances.

  • 16.3.3 Product Costing or Project Costing – The Interface from Order Management to Cost Accounting

    Intended learning outcomes: Produce an overview on various outputs from cost accounting. Present the various transactions handled by costing software.