*GENERAL INFORMATION ABOUT COST SYSTEMS:

Procedures, Methods for the Control, Techniques and Valuation of Production Operations.
The accounting systems to determine the production costs of a particular item must be adapted
to the company, which means that the manufacturing cost system to be implemented must be
adjusted to the form of production and control needs of the industry, service, or trade in
question.

*CONCEPT OF SYSTEM, PROCEDURE, METHOD, RULE AND TECHNIQUE:

- System. - It is the set of procedures, techniques and methods.
- Procedure. - It is the methodological and ordered sequence to carry out something.
- Technique. - It is the expression of the human or human activity. It is the means to overcome
difficulties.
- Method. - Reasoned way of acting, set of rules.
- Rule. - It is the set of indexes to be followed.

*THE INDUSTRY IS CLASSIFIED INTO TWO MAIN GROUPS: EXTRACTIVE INDUSTRY AND
TRANSFORMATION INDUSTRY.

- Extractive Industry: The purpose of this industry is to obtain the product of nature itself
(petroleum industry, mining in general, non-renewable resources, agriculture, livestock, fishing,
forest exploitation, renewable resources).

- Transformation Industry: Those that produce by means of assemblies or juxtaposition of

several parts until obtaining an article that is considered as a manufactured product. - Those
that subject the raw material to a constant process of elaboration or industrial transformation,
that have to add other materials to it.

- Commercial Enterprises - Those that serve as intermediaries between producers and

consumers of goods.

- Service Companies - Are those that sell consulting, assistance, transportation, advertising,
systems implementation, public services, etc.

* THE TRANSFORMATION INDUSTRIES CAN BE DIVIDED INTO THREE GROUPS

ACCORDING TO THE WAY THEY WORK:
1. Those that produce by means of assembly or juxtaposition of parts, until obtaining an article
that is considered as an elaborated product.
2. Those that subject the material to a constant process of elaboration or transformation,
perhaps adding more materials.
3. Mixed; they elaborate by combining the two previous ones.

• procedures for the control of the productive operations

It is that procedure of control of the productive operations that is applied, generally, to the
industries that produce by lots with variation of elaborated units.
 • process control procedure
This procedure is the one used in those industries whose production is continuous, mass,
uniform, where there is not a great variety of elaborated articles, nor can it be changed, existing
one or several processes for the transformation of the material.

• control procedure by operations

This is a derivation of the process procedure, only more analytical, is applicable in those
industries in which the production process can be susceptible to be divided, and then it is called
procedure by operations.

*TECHNIQUES FOR VALUATION OF PRODUCTION OPERATIONS:

We have already dealt with the control of the production by means of the above mentioned
procedures, now it is necessary to translate, in money, what is manufactured, with the
techniques of valuation of production and operations costs, as for the time in which they are
determined or obtained. These techniques are divided into historical costs also called actual
costs and predetermined costs classified into estimated costs and standard costs.

-COSTOS HISTORICOS O “REALES”

Los costos Históricos o Reales, son aquellos que se obtienen después

ADVANTAGES:
1) It gives in detail the production cost of each production order, basically the direct cost. (direct
material and direct labor).
2) the value of the production process is known, without the need to estimate, nor to execute
physical inventories.
3) The production cost is known in detail, therefore it will be easier to make future estimates
based on previous costs.
4) By knowing the value of each item, it is possible to know the gross profit or loss of each item.
5) By means of this procedure it is possible to control the operations.

DISADVANTAGES:
1) Its administrative cost is high since it is required to obtain the data in detailed form, same
that must be applied to each production order.
2) More time is required to determine production costs, which is why the data provided to
management may be untimely.
3) There are certain difficulties when, without fully completing the production order, it is
necessary to make partial deliveries, since the total cost is obtained until the end of the
production period

FINANCIAL AND MANAGEMENT ACCOUNTING. PARTICULARITIES:

-Financial Accounting together with Management Accounting constitute the two most important
branches of Accounting. Financial Accounting is mainly concerned with financial statements for
external use by investors, creditors, financial analysts, government agencies and other
interested groups.
-Management Accounting covers not only the company's internal decision making, but is also
used for external analysis of the company's performance in relation to the competitive
environment.
Elements of product cost
Materials: Materials are the main goods used in production and transformed into finished goods.
These materials can be divided into direct and indirect materials.
-Direct materials are all those physical elements that are essential to be consumed during the
manufacturing process of a product or service, and represent the main raw material cost in the
manufacturing process.
-Indirect costs are all those that are not directly associated with the finished product or service.

Labor: is defined as the physical or mental effort expended in the manufacture of a product or
service. Its cost can be divided into direct labor and indirect labor.
-Direct labor is defined as labor that is directly involved in the production of a finished article. -
Indirect labor is defined as labor that is not directly involved in the production process.

Other manufacturing costs: Other manufacturing costs are all production costs except
materials and labor.
-Direct: Are those that are identifiable with specific units of given production or service.
- Indirect: Are those that are not identifiable with the product or service and are indirectly related
to it.