What is a cost system and what is its purposes?

The building block of costing systems is how to trace direct costs to the cost object and how to allocate indirect costs to the cost object. There are two basic methods of allocating costs to the cost object, the job-costing system and process-costing system. Purpose of cost allocation 1. Provide information for economic decisions (Should a new product line be introduced? Do we have to produce or outsource ourselves?) 2. Motivate managers and other employees (E.g., simplify processes, selling high-profit products) 3. Justify costs or compute reimbursement (E.g., consulting fees in relation to the expected cost reductions) 4. Measure income and assets for reporting to external parties (E.g., to determine the cost of stock, etc.