Cost Accounting

Cost Accounting

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Cost Accounting and Control

Basic Concepts of Cost Accounting

and the Job Order Cost Cycle

Learning Objectives

• Define cost accounting and describe its purpose;

  
  

  •Cite and explain the manufacturing costs

  
  

  •Inventory accounts of Manufacturing Company

  
  

  •Discuss the cost systems and the cost accumulation systems;

  
  

  •Types of Cost Systems

The Need for Cost Accounting

• •Cost accounting is a system that records, summarizes, analyzes and interprets the details of the costs of materials, labor and overhead necessary to produce and sell an article

• •Cost accounting provides the detailed cost data that management needs to control current operations and plan for the future.

The Need for Cost Accounting

• •Companies must control costs in order to keep prices competitive.

• In today’s global environment, cost information is more crucial than ever in remaining competitive.

Type of Businesses that Use Cost Accounting

• •Manufacturers (URC)

  
  

  •Merchandisers (WalterMart)

  
  

  •Wholesalers (Beverage Distributors)

  
  

  •For-profit Service Businesses (CPAs, Attorneys)

  
  

  •Not-for-profit Service Agencies (Red Cross)

• 
  

Manufacturing Process

• •This process involves the conversion of direct (raw) materials, direct labor, and factory overhead into finished goods.

• •Product quality is an important competitive weapon in manufacturing.

Manufacturing Cost

• Direct materials - also called raw materials, are those materials used in the manufacturing process that become a significant part of the finished product

• Direct labor - wages paid to workers who spend their time working and converting the raw materials into finished goods. 

• Manufacturing overhead (also called factory overhead or factory burden) – all costs incurred in the factory that cannot be properly classified or considered as direct materials or direct labor. 

Multiple Choice

Leather for Bag

• Direct Material

• Direct Labor

• FOH

Multiple Choice

Lubricant Oil for machineries

• Direct Material

• Direct Labor

• FOH

Multiple Choice

Wages of Workers

• Direct Material

• Direct Labor

• FOH

Multiple Choice

Salary of Supervisor

• Direct Material

• Direct Labor

• FOH

Type of Costs as to Variability

1. Fixed Cost – items of cost which remain constant in total, irrespective of the  volume of production.

•Committed Fixed cost – relatively long term commitments. Ex. Depreciation

•Managed Fixed Cost – short term basis and can be modified in response to changes in management objectives . Ex. Advertising

Type of Costs as to Variability

2. Variable Cost – items of cost which vary directly, in total, in relation to volume  production. Ex. Direct materials

3. Mixed Cost – Items of cost with fixed and variable components.

•Semi-variable cost. The fixed portion usually represents a minimum fee for making a particular item. Ex. Electricity

•Step-cost – the fixed part changes abruptly at various activity levels because these costs are acquired in indivisible portions. Ex, supervisor’s salary.

Separating Mixed Cost

Ideally, for both planning and decision making, all costs would be classified as either fixed or variable. A high-Low Point method is one of the methods used in separating the fixed and variable components

High Low Point Method

Poll

Data to be used in applying the high-low method shows the highest cost of P69,000 and lowest cost of P52,000. The data show P148,000 as the highest level of sales and P97,000 as the lowest level. What is the variable cost per peso sales?

• P0.33

• P0.47

• P0.54

• P3.00

Purposes of Identifying the unit cost of the product

• 1.      Determine the selling prices of a product

  2.      Meeting competition

  3.      Bidding contracts

  4.      Analyzing profitability

  
  

Inventories of a Manufacturing Concern

• Raw Materials Inventory 

• Work in Process Inventory 

• Finished Goods Inventory 

Inventories of a Manufacturing Concern

• Raw Materials Inventory 

• Work in Process Inventory 

• Finished Goods Inventory 

Systems of Cost Accumulation

• 1. Actual cost system (Historical) – Under this system, direct materials, direct labor, and factory overhead costs are determined as they occur simultaneously with the manufacturing operations, but the total of these costs can be determined only after the operation has been completed

Systems of Cost Accumulation

• 2.  Standard cost system (Predetermined) – Costs are determined from analysis and forecasts made even before the actual production begins. Standard unit costs are computed for direct materials, direct labor and factory overhead. It is these predetermined amounts, not the actual costs incurred, that are transferred to the Finished Goods Inventory account.

  
  

Systems of Cost Accumulation

• 3. Normal cost system – This is a combination of the actual and standard cost systems. This system accumulates the actual amounts of direct materials and direct labor costs only. Factory overhead costs are accumulated using a predetermined rate. 

Types of Cost Systems

• Job order cost system – accumulates costs applicable to each specific job order or lot of similar goods manufactured on a specific order for stock or for a customer. 

Types of Cost Systems

• Process Cost System - commonly used in manufacturing operations in which the production process is standardized and continuous, and the product remains essentially the same from day to day. In many types of businesses that use process costing, manufacturing consists of a progressive series of distinct operations or processes. Usually, each process is carried out in a different department.  

Types of Cost Systems

• Dual systems – Some manufacturers use both the job order and process cost systems. 

Thank you and have a nice day!

See you next meeting.