Introduction to Costing

Sitti Syamsiar Muharram, PhD
Senior Lecturer

Faculty of Accountancy

Chapter 1:
Introduction to Cost Accounting

ACC116/466- UiTM Sabah

1

• Able to distinguish the features of cost and financial
  accounting

• Learn how to explain costing terms with examples of service and manufacturing industries

​Lesson Objectives

• Definition of costing

• Elements of costs

• Classification of costs

• Costing systems: terminologies, source documents,
  methods of recording, processing, storing and
  analysis and dissemination of information

• Differences between cost and management accounting and financial accounting

​Contents

• ..is defined as ‘the application of accounting and costing principles, methods and techniques in the
  ascertainment of costs and analysis of savings and/or
  excesses as compared with previous experience or with
  standards.’– CIMA

• The objectives of costing:

  1. To determine cost

  2. To plan cost

  3. To control cost

  4. To make decision

​Definition of Costing

Open Ended

What are the objectives of costing?

​Elements of Cost

• Material

• Labour

• Expenses

CLASSIFICATION OF COSTS

NATURE: Material, Labour, Expenses

• Material : Flour, Baking Powder
• Labour : Mixer, Baker
• Expenses : Electricity

FUNCTION : Production, Selling and Distribution, R&D,Finance,Administration

• Production—cost of manufacturing products. E.g Flour, Baker
• Selling & Distribution – costs include publishing the products to customers. E.g Salaries of cashiers
• Finance - Loan for Purchase of Equipment
• R&D—searching for new ideas etc.
• Administrative – operation costs to formulate policy, control costs, etc. E.g Board of Directors dividend

BEHAVIOR:Variable, Fixed, Semi-Variable/Semi-Fixed (Mixed)

• Variable—costs of items that vary in direct proportion to changes in the volume of production
• Fixed costs—unchanged regardless of volume of production
• Semi-variable—the mix of variable and fixed costs

TRACEABILITY: Direct, Indirect

• Direct – costs that are directly traceable to a particular product
• Indirect – costs that are not directly traceable to a particular product

6

​Classification of Costs

​Function

​Behaviour

Traceability

​Nature

Fill in the Blanks

Rice used in producing nasi lemak is classified as

(traceability)

Fill in the Blanks

Rice used in producing nasi lemak is classified as

(function)

Fill in the Blanks

Rice used in producing nasi lemak is classified as

(behaviour)

​Other Types of Costs

• Conversion Cost—all manufacturing costs other than direct material

• Product Cost – a sum of costs assigned to a product for a specific purpose

• Period Cost—all costs in the income statement other than the cost of goods
  sold

• Controllable—a cost that can be influenced by the action of a manager

• Non-controllable—a cost that is beyond the influence of the manager

• Normal—costs are expected and planned for at a level of output

• Abnormal – costs be avoided and the losses not expected
  to occur under operating conditions

​Statement of Costs

Statement of Costs – Sample 1

8

STATEMENT OF COSTS - Sample 2

9

Fill in the Blanks

Direct material + Direct Labour + Direct Expenses are equal to

.

​Costing terminologies

Costing Terminologies

Cost

• Expenditure incurred in producing product
or providing services

Cost Unit

• Quantitative unit where costs can be
related/ascertained

Cost Centre

• Responsibility center where the manager is is accountable for
costs only

Production; Profit;;
Investment; Revenue

Kg;Tonne; No. of Units;
KM; etc

10

Open Ended

Give example(s) of cost units for UiTM.

Open Ended

Give example(s) of cost units for AirAsia.

Open Ended

Give example(s) of cost centers for AirAsia.

​Cost accounting systems

• Source documents relating to relevant information material, labour and overhead

• Methods of recording, processing and storing information on material, labour and overhead

• Analysis and dissemination of information

Open Ended

Give examples of sources of documents

Word Cloud

How do you think about today's topic?

Cost Accounting Vs Financial Accounting

Cost Accounting

Financial Accounting

Purposes of
Information

Decision making
for management

Primary Users

Internal Users

Internal and External

Rules of Measurement

Monetary and Non-
Monetary

Time span of reports

Historical and Future

Historical

Type of reports

Various reports

Journals, Ledgers and Financial statements

Future-oriented

Past-oriented

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​External reporting

​Monetary

​Focus and Emphasis