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