1. Cost Accounting-I
Costing Methods

2. Costing Methods Allocating to Cost Centers
STEP I
(Primary Allocation)
Allocating to Production Cost Centers
STEP II (Re-Distribution)
Allocating to Cost Unit
STEP III (Costing Methods)

3. Costing Methods Allocating Total Production Costs to Unit Cost
Manufacturing costing methods are accounting techniques that are used to help understand the value of inputs and outputs in a production process.
Management needs this information in order to make informed decisions about
production levels,
pricing,
competitive strategy and
future investment,
Such information is primarily necessary for internal use, or managerial accounting.

4. Direct (Prime) Costing
Costing Methods
Behavioral Base
Direct (Prime) Costing
Fully Absorption Method
Variable (Marginal) Costing Method
Normal Costing Method
Production Base
Job Order Costing
Process Costing
Time Base
Estimated Costing
Standard Costing
Actual (Historical) Costing

5. Costing Methods on the Base of Behavior
These methods deals with the behavior of costs to the changes in level of activity.
Prime Costing
Absorption Costing
Variable Costing and
Normal Costing

6. Classification of Cost
According to Behavior
In this classification, costs are classified by their behavior to changes in the level of activity.
This is the analysis of how cost or profits change as volume changes.

7. Classification of Cost
According to Behavior
In this context volume might be an activity such as the number of machine hours, the number of units produced, the number of pounds processed, the number of units sold, or the TL of goods sold.

8. Classification of Cost According to Behavior- Fixed Costs
The cost which does not vary but remains constant within a given period of time or range of activity is called fixed costs. Example: Rent, insurance of factory buildings, depreciation etc. remain the same for different levels of production.

9. Classification of Cost According to Behavior- Variable Costs
The costs tend to vary with the volume of output called variable costs . Any increase in the volume of production results in an increase in the variable cost. Example: cost of material, cost of labor etc.

10. Costing Methods
Prime Costing Method (Direkt Maliyet, Asal Maliyet)
This method takes into account charging of only direct costs; direct material and direct labor to the production, job or order.

11. Costing Methods
Absorption Costing Method (Tam Maliyet)
This method also termed as Full Costing.
It is the technique that takes into account charging of all costs both variable and fixed costs to operation processed or products or services.
Under absorption costing full costs, i.e. fixed and variable costs are absorbed to the production.

12. Costing Methods
Variable (Marginal) Costing
In Marginal Costing, it allocates only variable costs to the production. It does not take into account the fixed cost of production.
This type of costing emphasizes the distinction between fixed and variable costs.

13. Costing Methods
Normal Costing
This method allocates the variable cost and the fixed production overheads to the costs of production based on the normal capacity of the production facilities.

14. Costing Methods What is Normal Capacity?
In cost accounting, normal capacity is similar to expected capacity, expected capacity is based on actual inputs and is short term in nature.
The actual level of production may be used as normal capacity.
Normal capacity is not maximum or theoretical capacity. Operating capacity is similar to normal capacity except it is calculated over a daily, monthly or quarterly period.

15. Costing Methods
Normal Costing
Under this method, the amount of fixed overhead allocated to each unit of production on the base of normal capacity rate.
Therefore, unallocated overheads are recognized as an expense in the period in which they are incurred.

16. Production Cost Center
Costing Methods
Illustration
Example: ABC Co.’s manufacturing costs of December are stated below kg iron sheet has been manufactured in December while the normal capacity is kg. The 60% of factory overhead is variable. Company sold kg iron sheet at a 90 TL/kg unit price in December. Ascertain the total cost and gross sales profit according to costing methods.
Costs/Cost Centers
Production Cost Center
Service Cost Center
Molding
Heating
Cafeteria
Direct Material
45.000 -
Direct Labor
55.000
Factory Overhead
50.000
20.000
Heating Costs Apportionment
18.000
(20.000)
2.000
Cafeteria Apportionment
12.000
(12.000)
Total Cost

17. Costing Methods Illustration Primary Absorption Marginal Normal
Direct Material
45.000
Direct Labor
55.000
Factory Overhead -
80.000
48.000
67.200
- Variable Overhead
- Fixed Overhead
32.000
19.200*
Total Cost
Unit Cost
33,33 TL/kg
60 TL/kg
49,33 TL/kg
55,73 TL/kg
Net Sales **
Cost of Goods Sold
(66.667)
( )
(98.667)
( )
Other Production Expense
(80.000)
(32.000)
(12.800)
Gross Sales Profit
23.333
60.000
49.333
55.733
* Normal Capacity Rate= 3.000/5.000=60%
Fixed Overhead Charged to Production Cost= x 60%=
** 90 TL/kg x kg =

18. Costing Methods on the Production Process Job Costing Process Costing

19. Costing Methods
Job Costing
Job order costing system is generally used by companies that manufacture a number of different products. It is a widely used costing system in manufacturing.
In ascertaining cost of each job order «Job Cost Sheet (İş Emri (Sipariş) Maliyet Kartı)» is prepared.

20. Costing Methods Job Costing-Job Order Cost Sheet
Job Order Cost Sheet is used to record manufacturing costs to compute and allocate costs to products and services. A separate job cost sheet is prepared for each individual job.
Job cost sheet is not only used to charge cost to jobs but is also a part of the company’s accounting record. It is used as a subsidiary ledger to the work in process account because it contains all details about the job in process.

21. Costing Methods Job Costing-Job Order Cost Sheet
Includes job number, product name, starting date, completing date, number of units completed, materials requisition number, cost of direct materials issued, time tickets, direct labor hours, direct labor rate per hour and total cost, manufacturing overhead rate per direct labor or machine hour and total cost etc.

22. Costing Methods Job Order Costing
The factory overheads will be allocated to each job order on the base of overhead rate ascertained according to allocation key (direct labor hour, machine hour, direct labor cost etc.). Manufacturing overhead is applied or added to each job while it is in process.

23. Costing Methods Job Order Costing
Manufacturing overhead (MOVH)
Applied (added) to
each job using a predetermined rate
Traced directly to each job
The
Job
Direct labor
Direct materials

24. Costing Methods Job Order Costing
Indirect Labor
wages
Other Actual OH Charges
Manufacturing Overhead Control Account
Job-Order Cost Sheets
Applied Overhead
Material usage
Indirect Materials

25. Costing Methods Job Order Costing-Illustration
Cutting& Molding
Assembly
Polishing
Example: ABC manufacturing furniture company has been manufactured 5 piece of bedroom and 4 piece of dining room furniture during December. Job order number of bedroom is BED100 and dinning room is DIN101. The cost allocation sheet is as follows:
Maintenance and Repair
Cafeteria
Heating

26. Costing Methods Job Order Costing-Illustration
Cost Centers/Costs
Production Department
Service Department
Cutting and Molding 
Assembly
Polishing
M & Repair
Heating 
Total Cost
Direct Material
8.000
20.000
12.000
40.000
Direct Labor
15.000
17.000
18.000
50.000
Factory Overhead
10.000
5.580
3.720
4.200
35.500
Total of Primary Distribution
35.000
47.000
35.580
Re-distribution of Heating Serve.
1.155
945
1.260
840
(4.200) -
Re-distribution of M&R Serve.
1.710
1.425
(4.560)
Total of Secondary Distribution
37.865
49.370
38.265
The issued raw material to cost centers and jobs are as follows:
Cost Elements
Job Order No.
Cost Centers
Cutting Molding
Assembly
Polishing
Total
Direct Material
BED100
3.000
8.500
6.500
18.000
DIN101
5.000
11.500
5.500
22.000
Total Cost
8.000
20.000
12.000
40.000
Direct Labor
7.000
9.000
15.000
17.000
50.000

27. Costing Methods Job Order Costing-Illustration
Regular labor payment rate is 10 TL and direct labor working hour occurred in cost centers are as follows:
Direct Labor
BED100
70 DLH
90 DLH
250 DLH
DIN101
80 DLH
150 DLH
160 DLH
180 DLH
500 DLH
Factory Overhead
12.000
10.000
5.580
3.720
4.200
35.500
Re-distribution of Heating Serve.
1.155
945
1.260
840
(4.200) -
Re-distribution of M&R Serve.
1.710
1.425
(4.560)
Total of Secondary Distribution
14.865
12.370
8.265
The factory overheads will be apportioned to each job on the base of DLH.
Required: Ascertain the cost of each job.
Overhead Charging Rate = Total Factory Overhead/Distribution Key
= /500 = 71 TL/DLH

28. Production Cost Centers
JOB ORDER COST SHEET
Date Initiated : Job Order No: BED100
Date Finished: Name of Production: Bedroom Furniture
Units Started: Units Completed:
Direct Material
Production Cost Centers
TOTAL
Cutting Molding 
Assembly 
Polishing 
Date
Material Issue Note No.
Unit
Unit Cost
Total Cost
3.000
8.500
6.500
18.000 
Direct Labor
Polishing
Payroll No.
Labor Hour
Regular Rate
 250 DHL
100
 25.000
7.000
9.000
25.000 
Factory Overheads
Allocation Key
Charging Rate
Unit Key
Total
DLH 
71 
 250
17.750 
 70 *71 = 4.970
90*71= 6.390 
90*71= 6390 
Total Cost of BED100
 14.970
23.890
21.890
60.750

29. Salaries and Wages Payable Overhead Applied to Work in Process
Costing Methods Job-Order System Cost Flows
Work-in-Process (Job Cost Sheet)
Salaries and Wages Payable
Direct Labor
Direct Materials
Indirect Labor
Direct Labor
Overhead Applied
Mfg. Overhead
Actual
Applied
If actual and applied manufacturing overhead are not equal, a year-end adjustment is required.
Indirect Materials
Overhead Applied to Work in Process
Indirect Labor

30. Costing Methods Job-Order System Cost Flows
Work-in-Process (Job Cost Sheet)
Finished Goods
Direct Materials
Cost of Goods Mfd.
Cost of Goods Mfd.
Cost of Goods Sold
Direct Labor
Overhead Applied
Cost of Goods Sold
Cost of Goods Sold

31. Gristmill Pasta Press Cutting and Drying
Costing Methods Process Costing
The method for ascertaining the total and unit cost of the output (work-in progress and finished goods) of a continuous production run. (such as in food processing , petroleum and textile industries) in which a product passes through several processes or cost centers.
Gristmill
Pasta Press
Cutting and Drying

32. Costing Methods Process Costing
Machine Department
The Cost of Beginning Inventory (Including Direct Material, Direct Labor and Factory Overhead) and
The Cost of Current Period Production (Including Direct Material, Direct Labor and Factory Overhead)
Assembly Department
The Cost of Beginning Inventory (Including Total Cost of Machine Department and Direct Material, Direct Labor and Factory Overhead of Assembly Department) and
The Cost of Machine Department Finished Goods (Including Total Cost of Machine Department and Direct Material, Direct Labor and Factory Overhead of Assembly Department)
The Cost of Finished Goods in Machine Department

33. Costing Methods Process Costing
It involves the following steps:
Ascertain total cost of per process computed by estimating the number of products passing through each process in a given period,
Calculate the 'unit cost per process' is computed by dividing the 'total cost per process' by the number of units passing through the process in the given period and
Ascertain the 'unit cost per process' is charged to each unit as it passes through each process so that, at the end of the production cycle,  each product will have received an appropriate charge for each process through which it has passed.

34. Costing Methods Process Costing
The unit cost of each process will be ascertained on the base of Equivalent Units (Eşdeğer Ürün Miktarı)
Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.

35. + = Costing Methods Process Costing-Equivalent Unit
Two one-half completed products are equivalent to one completed product. + =
So, 70 percent complete (full) product are equivalent to 0,7 complete units. If company products unit with %60 complete equals to unit completed product.

36. Costing Methods Process Costing- Cost Flow

37. Production Department Maintenance and Repair
Costing Methods Process Costing-Illustration
EXAMPLE: ABC Manufacturing Company has Maintenance & Repair and Infirmary (Revir) service cost centers and Assembly and Machinery product cost centers. Company ascertains the cost of inventory on base of Weighted Average Method. The costs allocated to cost centers are as follows:
Cost Allocation Sheet
Cost Centers/Costs
Production Department
Service Department
Machinery
Assembly
Maintenance & Repair
Infirmary
Total Cost
Direct Material
33.000
26.400 -
59.400
Direct Labor
16.640
23.800
40.440
Factory Overhead
8.360
8.200
2.640
800
20.000
58.000
58.400
 Benefits Received
Machinery
Assembly
Maintenance and Repair
Infirmary 
Total
Infirmary
%25
%40
%35 -
%100
Maintenance & Repair
%45
%30
Required: Apportion the indirect costs according to Simultaneous Equation Method.

38. Maintenance and Repair Production Department
Solution:
 Benefits Received
Machinery
Assembly
Maintenance and Repair
Infirmary 
Total
Infirmary
%25
%40
%35 -
%100
Maintenance & Repair
%45
%30
I=800+0,25M
M=2640+0,35I
I=800+0,25 (2640+0,35M)
I= ,875M I= M= 3.200
Cost Allocation Sheet
Cost Centers/Costs
Production Department
Service Department
Machinery
Assembly
Maintenance & Repair
Infirmary
Total Cost
Direct Material
33.000
26.400 -
59.400
Direct Labor
16.640
23.800
40.440
Factory Overhead
8.360
8.200
2.640
800
20.000
58.000
58.400
Apportionment of Infirmary
400
640
560
(1.600)
Apportionment of M&R
1.440
960
(3.200)
59.840
60.000

39. Production Department
Costing Methods Process Costing-Illustration
Cost Allocation Sheet
Cost Centers/Costs
Production Department
Service Department
Machinery
Assembly
Maintenance & Repair
Infirmary
Total Cost
Direct Material
33.000
26.400 -
59.400
Direct Labor
16.640
23.800
40.440
Factory Overhead
10.200
9.800
20.000
59.840
60.000
The cost of beginning inventory of each process are as follows:
Machinery
Assembly
Production Unit
Cost
Beginning Inventory
- The Cost of Machinery Department
- Direct Material
- Direct Labor
- Factory Overhead
1.000 units
20.135 -
7.160 TL
5.975 TL
7.000 TL
2.500 units
30.770
9.650
7.900
8.120
5.100
Current Periods Production
4.000 units
2.000 units
Ending Inventory
3.000 ?
1.500 units
Complete Percentage
%50
%60

40. Costing Methods Differences Between Job Costing-Process Costing