Module 1: Introduction to Cost Accounting PDF

Module 1. Introduction to cost accounting Module 1. Introduction to cost accounting Welcome to the course 'Cost Accounting' Introduction and course outline Source: https://www.press.bmwgroup.com Outline of the course 1 Introduction to cost accounting 2 Cost-type accounting 3 Cost-center accou...

Module 1. Introduction to cost accounting Module 1. Introduction to cost accounting Welcome to the course 'Cost Accounting' Introduction and course outline Source: https://www.press.bmwgroup.com Outline of the course 1 Introduction to cost accounting 2 Cost-type accounting 3 Cost-center accounting Cost Accounting 4 Product and service costing 5 Cost functions 6 Profit and loss calculation 7 Cost-volume profit analysis 8 Cost and revenue information for operative decisions 5 Module 1. Introduction to cost accounting Cost accounting as a part of corporate accounting Cost accounting and corporate management Cost accounting and corporate management Cost accounting supports the management of a company by providing information necessary for managing the entire company or individual departments  Cost accounting provides information for… Accounting objectives 7 Module 1. Introduction to cost accounting Cost accounting as a part of corporate accounting Cost accounting, management accounting, and financial accounting Cost accounting as part of corporate accounting Financial accounting including balance-sheet accounting and cash-flow statements Accounting system Capital budgeting Management accounting together with cost accounting 9 Management accounting vs. financial accounting Management accounting Financial accounting Addressees of the information Members of the company External parties Accounting objectives Planning, management, control and decision-making Presentation of wealth-, financial position and income situation; calculation of dividend payouts and taxes Rules of measurement Hardly any specifications US-GAAP, HGB, IFRS Accounting object Disaggregated accounts for parts of the company Aggregated accounts for segments and the company as a whole Time span and frequency Variable (daily, weekly, monthly or annual reports) Fixed (annual, half-yearly and quarterly reports) Focus Future- and past-oriented Past-oriented 10 Cost accounting vs. capital budgeting Cost accounting Capital budgeting Forecast Time value of money Up to one year for operational decisions Neglected Long-term effects of decisions Important 11 Module 1. Introduction to cost accounting Basic concepts of cost accounting Definition of costs Costs and Revenues Costs Revenues are valuated consumption of resources are valuated production of goods Three conceptual elements contained in the definition of costs and revenues: 1 Objective orientation 2 Valuation 3 Consumption of resources or production of goods 13 Costs, expenses, cash outflows Cash outflows Cash outflow not affecting shareholder’s equity Repayment of a loan; dividend payment Rent for spare rooms; donation Sale of equipment below book value Destruction of a plant by fire Cash outflow affecting shareholder’s equity Expenses • Expenses not related to business objectives • Expenses related to other periods • Extraordinary expenses Salaries of the employees; material costs Operating expenses Imputed interest cost Basic costs Imputed costs Costs 14 Module 1. Introduction to cost accounting Basic concepts of cost accounting Cost terms and their meaning: Total and unit costs, direct and indirect costs, fixed and variable costs Cost terms and their meaning 1 2 3 Reference Cost assignment Cost behavior Total costs Direct costs Fixed costs Unit costs Indirect costs Variable costs Artificial indirect costs 16 1 Total costs and unit costs Total costs Costs that relate to all goods produced within a given period Unit costs Costs of a single unit of a particular good 17 2 Direct costs and indirect costs Direct costs Indirect costs Artificial indirect cost Costs that can be traced directly to a cost object (caused by one cost object) Costs that cannot be assigned directly to a cost object (caused jointly by several cost objects) Costs that could in principal be traced directly to a cost object. However, comparing costs and benefits, companies do not trace them to cost objects 18 3 Variable costs and fixed costs Variable costs Fixed costs Costs that change when the quantity of a cost driver changes Costs that remain constant when the quantity of a cost driver changes Ctotal Ctotal = C fix+ Cvar· Q Relationship to total costs Cfix Q 19 2 3 Direct, indirect, fixed and variable costs Cost assignment Direct costs Indirect costs Gold required for an inlay Electricity costs charged only for the dental laboratory as a whole Salary of manager of the department that produces only inlays Rent for the rooms of the dental laboratory Cost behavior Cost object: all inlays produced 20 Module 1. Introduction to cost accounting Basic concepts of cost accounting Cost terms and their meaning: Inventoriable and period costs, opportunity and sunk costs Inventoriable costs and period costs Inventoriable costs Costs assigned to a particular product unit Period costs Costs that cannot be capitalized, i.e., they cannot be considered an asset in the balance sheet 22 Opportunity costs and sunk costs Opportunity costs Contributions to a company’s profit that is foregone by choosing a decision alternative over the next-best alternative Sunk costs Costs that were caused in the past and can no longer be changed by current decisions 23 Module 1. Introduction to cost accounting Basic concepts of cost accounting The three sub-systems of cost accounting Three sub-systems of cost accounting Cost-type accounting Cost-center accounting Product and service costing Which costs have been incurred? Where have costs been incurred? For which products have the costs been incurred? 25 Module 1. Introduction to cost accounting Basic concepts of cost accounting Absorption costing versus variable costing Absorption costing and variable costing Absorption costing Variable costing Product units are valued at full costs 1 Product units are valued at variable costs 2 27 1 Absorption costing Cost-type accounting Cost-center accounting Product and service costing Indirect costs Indirect costs Indirect costs Direct costs Direct costs Profit and loss statement Revenue accounting 28 2 Variable costing Cost-type accounting Cost-center accounting Fixed indirect costs Fixed indirect costs Variable indirect costs Variable indirect costs Direct costs Product and service costing Variable indirect costs Direct costs Profit and loss statement: Contribution-margin statement Revenues - Variable costs of goods sold = Contribution margin I - Fixed costs = Profit or loss Revenue accounting 29