Download presentation
Presentation is loading. Please wait.
1
OVERVIEW OF COST ACCOUNTING
1. Definition, scope, objectives of cost accounting 2. Relationships of cost accounting to financial & management accounting 3. Nature, classification & purposes of cost CLASS: BSAIS 1
2
COST ACCOUNTING an expanded phase of general or financial accounting which informs management promptly with the cost of rendering a particular service, buying and selling a product, and producing a product. the field of accounting that measures, records and reports information about costs.
3
COMPARISON: FA vs MA
4
RELATIONSHIP OF COST ACCOUNTING TO FA & MA
Cost Accounting information is needed and used by both financial and managerial accounting. Provides product cost information to external parties such as stockholders, creditors and various regulatory boards for credit and investment decisions. Provides product cost to internal parties such as managers for planning and controlling. FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING COST ACCOUNTING
5
CLASSIFICATION OF COSTS
I. As to relation to a product Manufacturing costs/product costs 1. Direct Materials 2. Direct Labor 3. Factory Overhead B. Non – manufacturing costs/period costs 1. Marketing or selling expense 2. General or Administrative expenses II. As to Verifiability A. Variable costs B. Fixed Costs C. Mixed Costs
6
CLASSIFICATION OF COSTS
III. As to relation to manufacturing departments Direct departmental charges B. Indirect departmental charges IV. As to their nature as common or joint A. Common costs B. Joint Costs V. As to relationship to an accounting period A. Capital Expenditure B. Revenue Expenditure
7
CLASSIFICATION OF COSTS
VI. For planning, control, and analytical processes Standard cost Opportunity Cost Differential cost Relevant Cost Out of pocket cost Sunk cost Controllable Cost
8
MANUFACTURING COST/ PRODUCT COST
DIRECT MATERIALS - materials that become part of a finished product and can be conveniently and economically traced to a specified product units. DIRECT LABOR - usually associated with manufacturing include machine operators, support personnel; and people who handle, inspect and store materials. - all labor costs for specific work performed on products that can be conveniently and economically traced to end products FACTORY OVERHEAD - Catchall for manufacturing costs that cannot be classified as direct materials or direct labor costs. - Also Called manufacturing overhead, factory burden, and indirect manufacturing costs.
9
MANUFACTURING COST/ PRODUCT COST
PRIME COSTS DIRECT MATERIALS FACTORY OVERHEAD DIRECT LABOR CONVERSION COSTS
10
NON MANUFACTURING COST/ PERIOD COST
MARKETING OR SELLING EXPENSES - all cost necessary to secure customer orders and get the finished product or service into the hands of the customer. ADMINISTRATIVE OR GENERAL EXPENSES - all executive, organizational and clerical expenses that cannot be logically be included under either production or marketing.
11
AS TO VARIABILITY FIXED COST
- Items of cost which remain constant in total, irrespective of the volume of production VARIABLE COSTS - Items of cost which vary directly, in total, in relation to volume of production MIXED COST - Items with fixed and variable components
12
HIGH LOW METHOD - EXAMPLE
Summary of electricity cost and direct labor hours Month Direct Labor Hours Cost of Electricity January 28 P 625 February 24 565 March 30 630 April 33 640 May 38 685 June 34 July 35 655 August 40 700 September 42 715 October 47 726 November 43 December 32
13
RELATION TO MANUFACTURING DEPARTMENT
DIRECT DEPARTMENTAL CHARGES - Cost that are immediately charged to the particular manufacturing department that incurred the cost since the costs can be conveniently identified or associated with the department that benefited from said cost. INDIRECT DEPARTMENTAL CHARGES - Costs that are originally charged to some other manufacturing department or account but are later allocated or transferred to another department that indirectly benefited from said cost
14
NATURE AS COMMON OR JOINT
COMMON COST - Costs of facilities or services employed in two or more accounting periods, operations, commodities, or services. Just like indirect cost, these costs are subject to allocation. JOINT COST - Cost of materials, labor and overhead incurred in the manufacture of two or more products at the same time. Also subject to allocation
15
RELATION TO AN ACCOUNTING PERIOD
CAPITAL EXPENDITURE - Expenditure intended to benefit more than one accounting periods and is recorded as an asset. REVENUE EXPENDITURE - Expenditure that will benefit current period only and is recorded as an expense.
16
FOR PLANNING, CONTROL AND ANALYTICAL PROCESSES
STANDARD COST - Predetermined costs for direct materials, direct labor and factory overhead. OPPORTUNITY COST - The benefit given up when one alternative is chosen over another. DIFFERENTIAL COST - Cost that is present under one alternative but is absent in whole or in part under another alternative. Incremental Cost – Increase Decremental Cost - Decrease
17
FOR PLANNING, CONTROL AND ANALYTICAL PROCESSES
RELEVANT COST - a future cost that change across the alternative. OUT-OF-POCKET COST - requires the payment of money (or other asset) as a result of their incurrence. SUNK COST - an outlay has already been made and it cannot be changed by present or future decision.
18
COST FLOW –MANUFACTURING FIRMS
COST INCURRENCE EXPENSE CATEGORY DIRECT MATERIALS DIRECT LABOR FACTORY OVERHEAD WORK IN PROCESS FINISHED GOODS COST OF GOODS SOLD SELLING AND ADMINISTRATIVE OPERATING EXPENSES
19
COST FLOW –MERCHANDISING FIRMS
COST INCURRENCE EXPENSE CATEGORY FINISHED GOODS COST OF GOODS SOLD SELLING AND ADMINISTRATIVE OPERATING EXPENSES
20
COST FLOW –SERVICE FIRMS
COST INCURRENCE EXPENSE CATEGORY DIRECT MATERIALS DIRECT LABOR FACTORY OVERHEAD COST OF GOODS SOLD SELLING AND ADMINISTRATIVE OPERATING EXPENSES
21
EXAMPLE1 Mighty muffler, INC. operates an automobile service facility, which specializes in replacing mufflers on cars. The following table shows the cost incurred during the month when 750 were replaced. NUMBER OF MUFFLER REPLACEMENTS 500 750 1,000 FIXED COST P60,000 VARIABLE COST 25,000 37, 500 50,000 TOTAL COST 85,000 97,500 110,000 COST PER MUFFLER REPLACEMENT 120 PER UNIT 80PER UNIT 60PER UNIT 50 PER UNIT 50PER UNIT TOTAL COST PER REPLACEMENT 170 PER UNIT 130PER UNIT 110PER UNIT
22
EXAMPLE 2 The financial statement of ABC Company included these items:
Marketing Costs 160,000 Direct labor Cost 245,000 Administrative Cost 145,000 Direct Materials Used 285,000 Fixed Factory Overhead Cost 175,000 Variable Factory Overhead Cost 155,000 Compute: Prime Cost 530,000 Conversion Cost 575,000 Total Inventoriable/Product Cost 860,000 Total Period Cost 305,000
23
EXAMPLE 3 APRIL MAY Sales in Units 3,200 4,500 Cost: Cost S P6,400
Cost T 5,600 5,6000 Cost U 7,100 Cost V 4,480 (1.4 per unit) 6,300 (1.4 per unit) Cost W 3,950 ( 1.234) 5,250 (1.167) Describe: Cost T = fixed cost Cost V = variable cost Cost W = mixed cost
24
EXAMPLE 4 XYZ Corporation estimated its unit costs of producing and selling 12,000 units per month as follows: Direct material used P32 Direct labor 20 Variable manufacturing Overhead 15 Fixed manufacturing Overhead 6 Variable marketing costs 3 Fixed manufacturing costs 4 Estimated unit cost 80 COMPUTE: TOTAL VARIABLE COST PER MONTH 840,000 TOTAL FIXED COSTS PER MONTH 120,000
25
EXAMPLE 5 Johnson Corporation is preparing a flexible budget and desire to separate its electricity expense, which is semi-variable and fluctuates with total machine hours, into its fixed and variable components. Information for the first three months of 2020 is as follows: Machine Hours - DENOM Electricity Expense - NUM January 3,500 P31,500 February 2,000 20,000 March 4,000 35,600 Compute the variable rate per machine hours 7.8 PER MACHINE HOURS Compute the fixed portion of Johnson's electricity expense. P4,400 Compute the total manufacturing costs if Johnson's actual machine hours are 4, ,500
Similar presentations
© 2025 SlidePlayer.com Inc.
All rights reserved.