Cost Accounting & Control Prelims PDF 2008

COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 Based on historical data SUBJECT OVERVIEW Need to comply with the standards (PFRS, PAS)...

COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 Based on historical data SUBJECT OVERVIEW Need to comply with the standards (PFRS, PAS) Informations are: I. INTRODUCTION TO COST MANAGEMENT & ACCOUNTING ○ Historical, quantitative, monetary, verifiable A. B. Financial, Managerial, & Cost Accounting Cost Accounting & Cost Management 🍒 MANAGERIAL ACCOUNTING Focuses on the needs of parties w/in org C. Factor affecting the use of cost management Addressed individual or divisional concerns D. Role of Management Accountants E. Accounting & Ethical conduct Based on future data F. Accounting Information System NO standards used G. Importance of data analytics w/in cost More concerned on the timing and relevance of management information for decision making II. COST CONCEPTS & CLASSIFICATIONS Informations are: A. Cost classified by Nature ○ current/forecasted, quanti/quali, B. Cost Classified by Production non/monetary, future data, cost not recorded C. Cost Classified by Traceability D. Cost Classified by Common/joint in the books E. Cost Classified by Accounting period RELATIONSHIP TO COST ACCOUNTING F. Cost for Decision Making III. COST ACCOUNTING CYCLE FINANCIAL takes all the data (including A. 3 Main Inventory Accounts management accounting) and B. Elements of Manufacturing Cost presents it in a standardized way IV. STATEMENT OF COGS IN MANUFACTURING for external stakeholders INTRODUCTION TO COST MANAGEMENT & MANAGEMENT Uses detailed data from cost acctg ACCOUNTING and other sources to create internal reports that influence the broader financial statements COST ACCOUNTING prepared in financial accounting Internal reporting system that provides product costing & other info used by managers in performing their functions COST ACCOUNTING & COST MANAGEMENT Intersection between financial and managerial accounting 🍒 COST ACCOUNTING process of collecting, recording, and analyzing cost Expanded phase of general/financial acctg that data related to the production of goods or services informs management promptly with the costs used more about measurement and recording in the business tracking costs. Provides product cost info to external parties for credit and investment decisions & internal parties for planning & controlling of the managers 🍒 COST MANAGEMENT broader concept that encompasses the planning, Applied to manufacturing & services concerns monitoring, and controlling of costs. managing a company's costs proactively to ensure RELATIONSHIP OF FINANCIAL, MANAGERIAL, & COST that resources are used efficiently and effectively. ACCOUNTING About controlling & optimizing cost for strategic 🍒 FINANCIAL ACCOUNTING planning & decision making Concerned with financial statements for external users by those who supply funds to the entity FACTORS AFFECTING THE USE OF COST MANAGEMENT Focuses on the enterprise as a whole 1 AAGB | BSA 🍒 GLOBAL COMPETITION 🍒 CUSTOMER ORIENTATION It increased the demand for more accurate cost Accountants & managers refers to firm’s value info — plays vital role in in reducing cost, chain as the set of activities required to design, improving productivity, & assessing product-line develop, produce, market, & deliver products & profitability services to customers PROBLEM: Local manufacturers cannot complete Cost Management system must track info relating w/ global competitors/brands to variety of activities important to customers 🍒 GROWTH IN THE SERVICE INDUSTRY Internal customer - recipient/audience of cost acctg info Service industry represents growing portion of the economy 🍒 TOTAL QUALITY MANAGEMENT Become more conscious on the need of accurate Managers strive to create an environment that will info for planing, controlling, continuous enable org to produce defect free products & improvement, & decision making services, has replaced the acceptable quality Changes in this sector adds to the demand for attitudes of the past innovative & relevant cost management info Gig economy — short-term contracts to provide 🍒 DATA ANALYTICS Practice of identifying & analyzing appropriate service & one of the most impactful new service data & communicating the resulting insights to sectors (Airbnb, Uber, FoodPanda, Grab) help improve org decision making 🍒 ADVANCES IN DIGITAL INFO TECH & MANUFACTURING ENVIRONMENT 🍒 FORENSIC ACCOUNTING Lessen the cost of manufacturing as systems help Action of identifying, recording, settling, extracting, the business to have access of the real time data reporting, and verifying past financial data for settling current or prospective legal disputes or for Has the objective of providing an ENTERPRISE projecting future financial data to settle legal integrated system capability — RESOURCE run all operations & provide disputes. PLANNING (ERP) access to real time data that span Fraud investigation, litigation support, performing SOFTWARE the entire value chain business valuations Online analytical software & facilitates improved decision 🍒 BUSINESS SUSTAINABILITY company's ability to create value over the long ABC SOFTWARE making for cost estimation, term by measuring performance, managing risks, product pricing, planning & budgeting and communicating effectively to key stakeholders that consistently reflects the achievement of its - Method used to continuously strategy. improve non/manufacturing. - Constraint must be identified & ROLE OF MANAGEMENT ACCOUNTANTS THEORY OF exploited. CONSTRAINTS - Characterized as “thinking process” recognizing that all 🍒 LINE POSITION resources are finite direct responsibility for the basic objectives of an org Demand pull system that strives Stars & actors of org JUST-IN-TIME to produce product only when MANUFACTURING needed Ones who set policy & make decisions that impact production ex) factory manager, assemblers 🍒STAFF POSITION Persistent pursuit & elimination of waste that simultaneously LEAN embodies respect for people. Lead Supportive in nature & have indirect responsibility MANUFACTURING time and cost is decreased, on orgs objectives production processes are streamlined. Providing financial & non financial info Have no authority over production area 2  COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 ex) CEO, CFO, Accountants, purchasing manager - the process of choosing among competing 🍒CONTROLLER - alternatives is decision making. can be improved if information about the chief accounting officer alternatives is gathered and made available to supervises all accounting departments. managers. viewed as a member of the top management team and encouraged to participate in planning, ACCOUNTING & ETHICAL CONDUCT controlling, and decision-making activities. has responsibility for both internal and external 🍒 BUSINESS ETHICS accounting requirements. learning what is right or wrong in the work environment and choosing what is right. 🍒TREASURER (accountants) objectivity, full disclosure, responsible for the finance function. confidentiality, due diligence, and avoiding raises capital and manages cash (banking and conflicts of interest. custody), investments, and investor relations. in charge of credit and collections & insurance. 🍒 ETHICAL BEHAVIOR can bring significant benefits to a company. Planning can create strong customer and employee loyalty. - detailed formulation of future actions to achieve a can avoid later litigation costs. particular end viewed as operating with integrity and honor is - requires setting objectives and identifying commercially successful and responsible business. methods to achieve those objectives. - Strategic Planning - long term goals, as a 🍒 STANDARDS OF ETHICAL BEHAVIOR Competence - possessing the necessity skills whole Confidentiality - do not disclose info to others - Tactical Planning - short term goals, plans to Integrity - applying, address/disclose conflicts of achieve strategic goals interest - Operations Planning - day-day Credibility - gain the trust of users implementation of tactical plans ACCOUNTING INFORMATION SYSTEM Controlling - processes of monitoring a plan's implementation 🍒 SYSTEM and taking corrective action as needed A set of interrelated parts that perform processes - Achieved with the use of feedback – information to achieve specific objectives. that can be used to evaluate or correct the steps Works by transforming inputs into outputs to meet that are actually being taken to implement a plan the system’s goals. & is a critical facet of the control function. 🍒ACCOUNTING INFORMATION SYSTEM (AIS): Continuous Improvement Provides information to users within the company. - to remain competitive or to establish a One that consist of interrelated manual & competitive advantage. computer part & uses process such as classifying, - defined as "the relentless pursuit of improvement summarizing, analyzing, & managing data in the delivery of value to customers. Components: - searching for ways to increase overall efficiency by ○ Instruction or manual: guide the users or reducing waste, improving quality, and reducing persons involved in the system costs. ○ Tool: computer software, application ○ Business forms: invoice, delivery receipt Decision Making 3 AAGB | BSA  ○ People: most important component, part of b. Operational Control IS entire AIS, manpower - provides managers with accurate and timely 🍒 2 ACCOUNTING INFORMATION SUBSYSTEMS feedback, ensuring that their actions align with the organization's long-term strategic goals. 1. Financial Accounting Information System - Determining what activities should be Produces outputs for external users. performed & assessing how well they are Tracking & reporting of financial statements performed Involves human judgment (activity/discipline) FAIS - technological framework that supports IMPORTANCE OF DATA ANALYTICS WITHIN COST MANAGEMENT these activities by automating & organizing financial data 🍒 DATA ANALYTICS ○ Focuses on how data is managed and Process which an organization utilizes various processed to ensure accurate financial amounts and types of data to help connect reporting strategy and other key goals to improved decision making throughout the organization 2. Cost Management Information System For decision making, provides relevant Produces outputs for internal users. comprehensive data not bound by external criteria Application of mathematical tools Objectives: 4 Data Analytical Types Costing services, products, and other objects of Profit/Loss Analysis interest What is assess historic ○ Helps in life cycle costing of products (ex) DESCRIPTIVE happening? trends in company’s pharmaceutical companies assessing all costs profitability from research to distribution). What ifs, root ○ Cost Accounting information system Why is it cause, causes DIAGNOSTIC happening? changes in revenue Planning and control & cost ○ Assists in deciding what actions to take, how to implement them, and evaluating their Forecasting & effectiveness What is likely budgeting analysis PREDICTIVE to happen? predicts customer ○ Operational information system. demand patterns Decision making ○ Value Chain Analysis: Tracks activities across Strategic Cost Management the value chain (design, development, What do I need PRESCRIPTIVE to do? analysis identifies production, marketing, delivery, post-sales specific process to service) to enhance customer value by reduce cost improving speed and efficiency. ○ the output of the 2 cost accounting Subsystems COST CONCEPTS & CLASSIFICATIONS 2 Major Subsystem of Cost Management IS a. Cost Accounting IS 🍒 COST cash or cash equivalent value sacrificed for - assign costs to individual products, services, acquiring goods or services that are expected to and other objects of interest to managers. It generate current or future benefits. supports both internal decision-making and Non-cash assets, like equipment, can be traded external financial reporting. for desired goods or services, reflecting the - Must comply with rules set by bodies/standards concept of cash equivalents. 4  COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 Cost Unit - cannot be easily or accurately traced to a specific Unit of quantity of product, service or tie in cost object. relation to w/c cost may be ascertained or - Common to several products expressed 3 Methods of Tracing Costs: Expired Costs 1. Direct Tracing: When costs are used up in producing revenue, - identifying and assigning costs to a cost object they become expenses and are deducted from that are specifically or physically associated with revenue on the income statement to determine that object. profit. - most accurate & precise as it relies on physical A loss occurs when a cost expires without observation & casual relationship generating any revenue 2. Driver Tracing: Unexpired Costs - assigning costs to cost objects using drivers classified as assets and appear on the balance - cause & effect reasoning to identify factors sheet. that cause changes in resource usage, activity represent costs that are expected to benefit future usage, costs, or revenues. periods, such as computers or factory buildings. - Drivers provide a measurable link between the cost 🍒 COST OBJECTS and the cost object, even when direct observation anything for which costs are measured and isn't possible. assigned. - More costly, relies on drivers (casual factor) can include products, customers, departments, projects, activities, etc. 3. Allocation - Assignment of indirect costs to cost object Activity - no direct causal relationship exists, basic unit of work performed within an - done based on convenience or an assumed linkage organization. rather than accuracy Essential component of activity-based cost - Simplest & least expensive, least accurate cost accounting system assignment 🍒 ACCURACY OF COST ASSIGNMENTS increases with the traceability of costs. The more costs that can be directly traced to a cost object, the more accurate the assignment goal is to measure and assign the cost of resources used by a cost object as precisely as possible. 🍒PRODUCT & SERVICE COSTS 2 types of output Traceability 1. Tangible Products - ability to assign a cost directly to a cost object in physical goods produced by transforming raw an economically feasible way, using a causal materials into finished products through labor and relationship. capital inputs like plants, machinery, and land. Direct Costs 2. Services - easily and accurately traced to a cost object. activities or tasks performed for customers, or Indirect Costs activities that customers perform using an organization’s products or facilities. Services also require inputs such as materials, labor, and capital. 5 AAGB | BSA  can be traced to the finished product, they form part of the product. Dimensions Tangible Services direct costs. Products B. DIRECT LABOR Intangibility can be seen, intangible, amount paid as wages to those working touched, or buyers cannot tested before see, feel, hear, or directly on the product. purchase taste them associated with manufacturing include before purchase machine operators; maintenance workers; managers and supervisors; support Perishability stored for future cannot be use stored. Once a personnel; and people who handle, inspect. service is and store materials. performed, it cannot be C. FACTORY OVERHEAD reused or stored All indirect manufacturing cost for later varied collection of production-related costs Inseparability The production Production and that cannot be practically/conveniently & consumption consumption traced directly to end products. of these occur also called manufacturing overhead, products are simultaneously, factory burden. and indirect manufacturing separate; buyers requiring direct do not need to contact between costs be in contact the provider and PRIME COST RM + DL with the the customer. producers EX) Medical examination CONVERSION COST > DL + FOH > cost of converting RM to FG 🍒 TYPES OF ORGANIZATIONS: 🍒 NONMANUFACTURING COST / PERIOD COST Manufacturing Organizations A. MARKETING / SELLING EXPENSES - produce tangible goods, such as cars, electronics, all costs necessary to secure customer orders or clothing. and get the finished product or service into the hands of the customer. Service Organizations: Often referred to as order-getting and - produce intangible products, such as healthcare, order-filling costs. education, or financial services. B. ADMINISTRATIVE / GENERAL EXPENSES Upstream cost all executive, organizational, and clerical - Cost incurred prior production expenses that cannot logically be included under production or marketing. Downstream cost - Cost incurred after production COST CLASSIFIED BY VOLUME OF PRODUCTION / VARIABILITY COST CLASSIFIED BY NATURE / ELEMENT/ PRODUCTION 🍒VARIABLE COST 🍒 MANUFACTURING COSTS / PRODUCT COST A. DIRECT MATERIALS All cost that fluctuates in total in response to small changes in the rate of utilization of capacity basic ingredients that are transformed into vary directly in total in relation to volume of finished products through the use of labor production and factory overhead in the production Cost per unit remains constant as volume process. changes within a relevant range. 6  COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 Ex) direct materials. direct labor, royalties, and fixed part of step costs changes abruptly at commission of salesmen. various activity levels as these costs are acquired 🍒FIXED COST in indivisible portions. similar to a fixed cost within a very small relevant remain constant in total, irrespective of the range. volume of production. not related to activity within the relevant range. COST CLASSIFIED BY TRACEABILITY / Cost per unit decreases as volume increases, and MANUFACTURING DEPARTMENTS increases as volume decreases. assignable to departments based on difference 🍒DIRECT DEPARTMENTAL CHARGES immediately charged to the particular allocation methods. manufacturing departments that incurred the 2 categories costs 1) Committed fixed costs costs that represent relatively long term 🍒INDIRECT DEPARTMENTAL CHARGES originally charged to some other manufacturing commitments on the part of management as a departments or accounts but are later allocated result of a past decision. or transferred to other departments Ex) depreciation on equipment. COST CLASSIFIED BY COMMON/JOINT COST 2) Managed fixed costs discretionary, programmed, or planned fixed 🍒COMMON COST costs Costs of facilities or services employed in two or incurred on a short-term basis and can be more more accounting periods, operations, easily modified in response to changes in commodities, or services. management objectives. subject to allocation. Ex) advertising, research and development and Ex) if 2 departments are occupying the same costs of training of employees building, the depreciation is a common cost 🍒MIXED COST subject to allocation based on the area occupied. with fixed and variable components. 🍒JOINT COST vary with the level of production, not in direct Costs of materials, labor, and overhead incurred in relation to it, but part of the cost is fixed while the the manufacture of 2 or more products at the rest is variable. same time. indivisible and are not specifically identifiable with any of the products being simultaneously produced. 2 types subject to allocation. 1) Semi-variable cost Ex) - direct materials, direct labor, and factory The fixed portion of a semi-variable cost overhead cost incurred to manufacture 2 or more represents a minimum fee for making a particular products up to the point of split-off (or where item or service available. they will go separate ways) variable portion is the cost charged for actually using the service. COST CLASSIFIED BY ACCOUNTING PERIOD 2) Step costs 🍒CAPITAL EXPENDITURE intended to benefit more than one accounting period and is recorded as an asset. 7 AAGB | BSA  allocation of the cost: 🍒OUT-OF-POCKET COST ○ depreciation for fixed tangible assets sobra sa budgeted cost yung naincurred ○ amortization for intangible assets Cost that requires the payment of money (or ○ depletion for wasting assets. other assets) as a result of their incurrence. 🍒REVENUE EXPENDITURE 🍒SUNK COST Expenditure that will benefit the current period outlay has already been made and it cannot be only and is recorded as an expense. changed by present or future decision. Not relevant for decision making COST CLASSIFIED FOR DECISION MAKING 🍒CONTROLLABLE COST 🍒STANDARD COST level has power to authorize the cost Predetermined costs for direct materials, direct Cost that responds to the amount of attention labor, and factory overhead. devoted by a specified manager Technique that involves comparison of actual ex) entertainment expense are controllable by cost w/ standard cost to determine variances sales manager if he or she had power to using information accumulated from past authorize the amount of entertainment for experience and data secured from research customers studies. budget for the production of one unit of product COST ACCOUNTING CYCLE or service. cost chosen by the managerial accountant to 3 MAIN INVENTORY ACCOUNTS serve as the benchmark in the budgetary control system. 🍒MATERIALS INVENTORY Materials inventory control account 🍒OPPORTUNITY COST Balances of materials and supplies on hand benefit given up when one alternative is chosen Materials taken out is transferred to WIP over another. not recorded in the accounting system. 🍒WORK IN PROCESS INVENTORY considered when evaluating alternatives for All manufacturing cost incurred & assigned to decision-making. products being produced Includes: 🍒DIFFERENTIAL COST ○ Direct labor / payroll present under one alternative but is absent in ○ Direct materials issued whole or in part under another alternative. Transferred to FG when sent out to storage area Yung difference ng dalawang alternatives ang differential cost 🍒FINISHED GOODS INVENTORY Incremental cost - increase in cost from one When goods are sold it is debited to COGS and alternative to another credited to FG Decremental cost - decrease in cost. Marginal revenue - obtained from selling one more unit of product Marginal Cost - cost involved in producing one more unit of product 🍒RELEVANT COST A future cost that changes across the alternatives. ex) COGS, advertising. warehouse depreciation, commissions 8  COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 3 ELEMENTS OF MANUFACTURING COST STATEMENT OF COST OF GOODS SOLD IN 🍒DIRECT MATERIALS MANUFACTURING 🍒DIRECT LABOR Diligent Manufacturing Company 🍒FACTORY OVERHEAD CONTROL Statement of Cost of Goods Sold Sums all overhead Indirect materials issued For the month ended January 31, 2024 Indirect labor issued Depreciation expense used for operations Direct Materials Used Cost of heat, light, power used for operations Materials, Beginning xx Selling & Administrative Control Account Add: Purchases xx Depreciation expense used in the office Total Available Materials xx Cost of heat, light, power “ Less: Materials, End xx Miscellaneous expense “ Indirect Materials xx (xx) TRIAL BALANCE FORMAT Direct Materials Used xx Add: Direct Labor xx Diligent Manufacturing Company Add: Factory Overhead xx Trial Balance Total Manufacturing Cost xx As of January 31, 2024 Add: Work in Process, Beginning xx Total Cost of Goods put into Account Title Debit Credit Process xx ASSETS xx Less: Work in Process, Ending (xx) LIABILITIES xx Cost of Goods Manufactured xx EQUITY xx Add: Finished Goods, Beginning xx INCOME xx Total Goods Available for Sale xx EXPENSES xx Less: Finished Goods, Ending (xx) Total: ₱ 1,000,000 ₱ 1,000,000 Cost of Goods Sold ₱1,000 STATEMENT OF COST OF GOODS MANUFACTURED Bob's Bistro Statement of Cost of Goods Manufactured For the Coming Year Cost of Goods Manufactured xx Add: Beginning Finished Goods xx Cost of Goods Available for Sale xx Less: Ending Finished Goods (xx) Cost of Goods Sold xx 9 AAGB | BSA  OTHER FORMULAS PRIME COST PER UNIT Direct Materials + DIrect Labor = Total / Number of units CONVERSION COST PER UNIT Direct Labor + Variable OH + FIxed OH = Total / Number of units VARIABLE COST PER UNIT Direct Materials + Direct Labor + Variable OH = Total / Number of units PRODUCT COST PER UNIT Direct Materials + Direct Labor + Variable OH + FIxed OH = Total / Number of units PERIOD COST PER UNIT General or Admin expense + Selling expenses = Total number / number of unit expenses STATEMENT OF COST OF GOODS SOLD IN MANUFACTURING 🍒 IMPORTANT INFORMATION ★ Information 10  COST ACCOUNTING & CONTROL | PRELIMS 1st Semester | 2nd year - BSA | 2008 ★ Information ★ information COLOR PALETTE Fonts Hedings ○ Kanit ○ Itim Contents ○ Itim Sizes Letter document Margins ○ 0.5 all sides 🍒 NOTE ★ This template is for personal use only. Do not resell/ distribute under your name. ★ Making a copy ○ Go to file → make a copy ○ Rename the file ○ Click “make a copy” 11 AAGB | BSA 12