Introduction to Cost Accounting – Basic Concepts PDF

COLLEGE OF ACCOUNTANCY Introduction to Cost Accounting – Basic Concepts and the Job Order Cost Cycle COLLEGE OF ACCOUNTANCY  COLLEGE OF ACCOUNTANCY Learning Objectives Define cost accounting and describe its purpose; Cite and explain the manufactu...

COLLEGE OF ACCOUNTANCY Introduction to Cost Accounting – Basic Concepts and the Job Order Cost Cycle COLLEGE OF ACCOUNTANCY  COLLEGE OF ACCOUNTANCY Learning Objectives Define cost accounting and describe its purpose; Cite and explain the manufacturing costs and inventory accounts; Prepare the statement of cost of goods manufactured; Discuss the cost systems and the cost accumulation systems; and Describe accurately the job order cost cycle.  COLLEGE OF ACCOUNTANCY The Need for Cost Accounting Cost accounting provides the detailed cost data that management needs to control current operations and plan for the future. Companies must control costs in order to keep prices competitive. In today’s global environment, cost information is more crucial than ever in remaining competitive.  COLLEGE OF ACCOUNTANCY Cost Accounting vs. Financial and Managerial Accounting Cost accounting includes those parts of both financial and management accounting that collect and analyze cost information.  COLLEGE OF ACCOUNTANCY Performance Report Example.  COLLEGE OF ACCOUNTANCY Types of Businesses That Use Cost Accounting Manufacturers (Toyota) Merchandisers (Waltermart) Wholesalers (Beverage Distributors) For-profit Service Businesses (CPAs, Attorneys, Engineering Services) Not-for-profit Service Agencies (Red Cross)  COLLEGE OF ACCOUNTANCY The Manufacturing Process This process involves the conversion of direct (raw) materials, direct labor, and factory overhead into finished goods Product quality is an important competitive weapon in manufacturing  COLLEGE OF ACCOUNTANCY Elements of Manufacturing Costs Direct materials - Materials that become part of the finished good and can be readily identified. Direct labor - Labor of employees who work directly on the product manufactured. Factory overhead - Includes all costs related to production other than direct materials and direct labor.  COLLEGE OF ACCOUNTANCY Elements of Manufacturing Costs Prime Cost and Conversion Cost  COLLEGE OF ACCOUNTANCY Elements of Manufacturing Costs Inventories  COLLEGE OF ACCOUNTANCY Flow of Manufacturing Costs  COLLEGE OF ACCOUNTANCY Illustration of Accounting for Manufacturing Costs  COLLEGE OF ACCOUNTANCY Illustration of Accounting for Manufacturing Costs  COLLEGE OF ACCOUNTANCY Illustration of Accounting for Manufacturing Costs  COLLEGE OF ACCOUNTANCY Cost of Goods Sold  COLLEGE OF ACCOUNTANCY Systems of Cost Accumulation 1. Actual cost system (Historical) – Under this system, direct materials, direct labor, and factory overhead costs are determined as they occur simultaneously with the manufacturing operations, but the total of these costs can be determined only after the operation has been completed. 2. Standard cost system (Predetermined) – Costs are determined from analysis and forecasts made even before the actual production begins. Standard unit costs are computed for direct materials, direct labor and factory overhead. It is these predetermined amounts, not the actual costs incurred, that are transferred to the Finished Goods Inventory account. 3. Normal cost system – This is a combination of the actual and standard cost systems. This system accumulates the actual amounts of direct materials and direct labor costs only. Factory overhead costs are accumulated using a predetermined rate  COLLEGE OF ACCOUNTANCY Cost Accounting Systems Job Order Cost System Output consists of special or custom-made products. Provides a separate record for the cost of each quantity of these special or custom-made products. Process Cost System Accumulates costs for each department or process in the factory. Dual System Combination of Job Order and Process Cost System This is often used when a company makes standard parts or subassemblies continuously, and then incorporates them into finished goods built to customer specifications  COLLEGE OF ACCOUNTANCY Job Order Cost System  COLLEGE OF ACCOUNTANCY Introduction to the Job Order Cost Cycle (Normal Costing) 1. Procurement – Materials and supplies needed for manufacturing are ordered, received and stored. Direct and indirect factory labor and services are obtained. 2. Production – Materials are transferred from the storeroom to the factory. Labor tools, machines, power and other costs are applied to complete the product. 3. Warehousing – Finished goods are moved from the factory to the warehouse where they are held until they are sold. 4. Selling – Firm looks for and finds customers. Merchandise is shipped from the warehouse when sales are made. The sales are recorded in the books.  COLLEGE OF ACCOUNTANCY Thank you and have a nice day! See you next meeting