Cost Accounting and Control PDF

lOMoARcPSD|10983236 Cost Accounting and Control - Cost Concept and Classifications (Theories) Bachelor of Science in Accountancy (Polytechnic University of the Philippines) Scan to open on Studocu Studocu is not sponsor...

lOMoARcPSD|10983236 Cost Accounting and Control - Cost Concept and Classifications (Theories) Bachelor of Science in Accountancy (Polytechnic University of the Philippines) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by ash ([email protected])  lOMoARcPSD|10983236 COST ACCOUNTNG AND CONTROL Notes COST CONCEPTS AND CLASSIFICATIONS COST ACCOUNTING analyzing of methods and business techniques in Main function is to determine how much an transactions accumulating object, project, or service cost. and events to the cost of Determines the cost of products and services. produce products or 昀椀nancial services. Measures and reports 昀椀nancial and non- statements. 昀椀nancial information related to resource consumption. considers only considers both Identi昀椀es, de昀椀nes, and analyzes costs in items with items with producing and marketing goods and services. monetary monetary and values. non-monetary FUNCTIONS OF COST values. ACCOUNTING Users Both internal Internal users Focus: and external Primarily, determines product/service costs. users Methods: Objective To re昀氀ect the To determine Uses direct measurement, arbitrary correct the product assignment, and systematic allocation to 昀椀nancial and service determine product cost. information of cost. the company Integration: Integrates with 昀椀nancial accounting for Reports Financial Management product costing information for FS. Statements reports Integrates with management accounting for quantitative, cost-based information. COST VS. EXPENSE FINANCIAL ACCOUNTING VS. Cost: COST ACCOUNTING Represent amounts paid for goods or BASIS FINANCIAL COST services. ACCOUNTING ACCOUNTING Appears as an asset on the 昀椀nancial statement (e.g., equipment purchase). Nature It relates to the It relates to the classifying, di昀昀erent recording, and costing Downloaded by ash ([email protected])  lOMoARcPSD|10983236 COST ACCOUNTNG AND CONTROL Notes COST CONCEPTS AND CLASSIFICATIONS Expense: Controllable Cost – the manager can signi昀椀cantly or heavily in昀氀uence its incurrence Represent amounts paid for business (adjusting rawmats based on project). operations. Necessary to generate revenue. Uncontrollable Cost – the manager cannot Presented in the income statement (e.g., signi昀椀cantly in昀氀uence its incurrence (昀椀xed equipment depreciation). renting cost) CLASSIFICATION OF COST AS TO TIMING OF CHARGES TO REVENUE: AS TO FUNCTIONAL AREAS OF AN Product Cost –assigned to goods or services ORGANIZATION: until sold (DMAterials) Manufacturing Cost: Incurred in the Period Cost –matched against revenues in the production of the product or service. same time period in which it is incurred (sales comission) Direct Materials: Raw materials directly AS TO AVOIDANCE: identi昀椀able in the 昀椀nal product. Direct Labor: Amounts paid to factory Avoidable Cost – can be avoided by making workers directly involved in converting one choice over the other (Ads Exp.) RawMats to the 昀椀nished product. Unavoidable Cost – cannot be changed in the Manufacturing Overhead: Costs related future when choosing one decision over the to a cost object but can't be economically other (Long term rent) traced to it. PRIME COST = DM + DL ; CONVERSION AS TO DECISION MAKING: COST = DL + MOH Opportunity Cost – bene昀椀t sacri昀椀ced when Non-Manufacturing Cost: Incurred in choosing one action over the other. administering business operations and commercializing the product or service. Di昀昀erential Cost – amount by which the cost di昀昀ers under two alternative actions. AS TO TRACEABILITY: Relevant Cost – incurred in one alternative Direct Cost –can be traced to a particular unit but will not be incurred in another alternative. or department (cost of rawmats and wages of direct laborer) Marginal Cost – extra cost incurred when one additional unit is produced. Indirect Cost –not directly traceable to a particular unit or department (cost of indirect Average Cost – total cost to produce the materials) product ÷ number of units manufactured or produced. AS TO CONTROLLABILITY: Sunk Cost – has been paid or incurred. Irrelevant in decision making. Downloaded by ash ([email protected])  lOMoARcPSD|10983236 COST ACCOUNTNG AND CONTROL Notes COST CONCEPTS AND CLASSIFICATIONS Out-of-Pocket Cost – requires the payment of It is best suited to small businesses selling low cash or other assets in the future as a result of volume and high value items such as car its incurrence (Professional Consultation Fee) dealership or art gallery. AS TO ACTIVITY AND ITS BEHAVIOR: PERIODIC INVENTORY SYSTEM Fixed Costs – constant in total within the It uses an occasional physical count to relevant range of activity but variable on a per measure the level of inventory and the cost of unit basis. goods sold. Variable Costs – change in direct relation to It is best suited to businesses with low value volume of production. These are constant on a and high sales volume and multiple retail per unit basis as activity changes within the outlets like grocery stores or pharmacies. relevant range. NOTES: Cost of Goods Manufactured and Mixed Costs – are costs that have both 昀椀xed Sold, and Entries for transactions are not and variable component. included here. Refer to the book/ppt. Methods: High-low Method, Scatter Graph METHODS OF ACCUMULATING Method, and Least Square Method. PRODUCT COST INVENTORY ACCOUNTS ACTUAL COSTING SYSTEM Raw Materials Inventory – raw materials It requires that all production overhead must available for use in the manufacturing be available before any cost allocation can be process. made to the jobs in process. Work in Process Inventory – costs of partially completed goods that have been started but Direct Materials actual not yet completed as of a certain period. Direct Labor actual Finished Goods Inventory – it summarizes Manufacturing Overhead actual the costs of completed goods stored in the warehouse ready for delivery to customers. INVENTORY SYSTEM NORMAL COSTING SYSTEM The manufacturing overhead is applied to the PERPETUAL INVENTORY SYSTEM production using a predetermined overhead It keeps track of inventory balances rate (plant-wide or departmental). continuously with updates made Predetermined overhead rate is the ratio of automatically whenever a product is received estimated total overhead to the estimated or sold. total of cost driver selected. Downloaded by ash ([email protected])  lOMoARcPSD|10983236 COST ACCOUNTNG AND CONTROL Notes COST CONCEPTS AND CLASSIFICATIONS Direct Materials actual Direct Labor actual Manufacturing applied Overhead DISPOSITION OVERHEAD VARIANCE Under the normal costing, actual and applied overhead are usually not equal. The two are compared at the end of the period to evaluate the appropriateness of predetermined overhead rate used: actual > applied = underapplied (unfavorable) actual < applied = overapplied (favorable) If the variance is insigni昀椀cant, it is closed to Cost of Goods Sold: Cost of Goods Sold xxx Manufacturing Overhead xxx If the variance is signi昀椀cant, it is closed to all accounts with overhead element: Manufacturing Overhead xxx Work in Process Inventory xxx Finished Goods Inventory xxx Cost of Goods Sold xxx Xoxo. Downloaded by ash ([email protected])