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CHAPTER 1  It addresses the individual or divisional concerns rather than

those of the enterprise as a whole.
 Information is current/forecasted, quantitative/qualitative,
Cost Accounting monetary/non-monetary, and timely.
 Emphasizes Relevance and Timeliness.
 Informs management about the cost of rendering services,
buying and selling a product and producing a product. Manufacturing process
 It is a field of accounting that measures, records and reports
 Involves conversion of raw materials into finished product
information about costs
through the application of labor and incurrence of various
 It is needed and used by both financial and managerial
factory expenses.
accounting.
 It provides product cost information to external users such as Planning
stockholders, creditors and investors.
 Is the process of establishing objectives and goals of the firm
 It provides product cost information to internal parties such
and determining the means by which the firm will attain
as managers for planning and control.
them.
Financial Accounting Control
 Concerned on providing financial information to external  Is process of monitoring company’s operations and
users such as the government, those who provide funds and determining whether the objectives set in planning process
those who are interested in the company’s operation. are being accomplished.
 It reports an enterprise as a whole.
 Information is historical, quantitative, monetary and Job-order Costing
verifiable.
 Product costing system used by companies making one-of-a-
 It is required to be submitted by entities formed as kind or special-order products.
corporation by the SEC and BIR.
 Allocating cost to a group of unique products or production
 Emphasizes relevance, timeliness, verifiability and free from of customer specified products.
bias
 Each Job becomes cost center
Managerial Accounting  Subsidiary record (job cost sheet) for unfinished jobs (work In
process) and finished jobs (finished goods).
 It focuses on the needs of parties within organization  Collects manufacturing cost and allocate them to specific jobs
or batches of product.
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 Measured cost for each completed job Loss – cost that expired without producing any revenue
 Maintains 1 work in process control account, supported by benefit.
subsidiary record of job cost sheet.

Process Costing
Manufacturing Cost/Product Cost
 Product costing system that Is used by companies that make
1. Direct Materials
large number of similar products or maintain continuous
production flow.  Basic ingredients that are transformed into finished products
 A system applicable to a continuous process of production through the use of labor and factory over head in production
same or similar goods. process.
 The products are uniform so as the cost.  Materials that become parts of finished products and can be
 Each processing department becomes cost center. conveniently and economically traced to specific product
 Manufacturing costs are grouped per department or work units.
center.
 Measures cost per weekly or monthly time period. 1.1. Indirect Materials
 Maintains several work in process inventory accounts – one o minor materials and other productions supplies that
for each department or work center. cannot be conveniently and economically traced to a
specific product.
Operation Costing (Hybrid Costing) o Part of factory overhead costs
 Hybrid costing often used in a repetitive manufacturing
where finished products have common as well as 2. Direct Labor
distinguishing characteristics.  Represents the amounts paid as wages to those working
directly on the product.
CHAPTER 2  The wages of machine operators and other workers
involved in actually shaping the products are classified
under direct labor costs.
Cost
 Work performed on products that can be conveniently
 Cash or cash equivalent value sacrificed for goods and and economically traced to end products.
services that are expect ed to bring a current or future benefit
to the organization. 2.1.1. Indirect labor costs

Expenses – Expired Costs (used in production)

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o Labor cost that cannot be conveniently and  Included in operating expenses

economically traced to end products  E.g. executive compensation, general accounting, secretarial,
o e.g. wages/salaries machine helpers, public relations, etc.
supervisors and other support personnel.
o Part of factory overhead co Cost Classified as to variability

1. Fixed Costs
Prime Cost = Direct Labor + Direct Material
Conversion Costs = Factory Overhead + Direct Labor  Total fixed costs remains in constant, irrespective of the
volume of production.
3. Factory Overhead  Cost per unit decreases as volume increases, and
 Manufacturing cost that cannot be classified as direct increases as volume decreases. (inverse)
labor or direct materials  E.g. Salaries of production executives, depreciation of
 It cannot be conveniently and economically traced to an equipment computed on straight line basis, periodic rent
end products payments and insurance.

2 Categories of fixed costs:

Non-Manufacturing Cost/Period Cost a) Committed fixed Costs

o costs that represent relatively long-term commitments of
1. Marketing or Selling Expenses the management.
b) Managed fixed costs
 “Order-getting or Order-filling”
o Costs incurred on a short-term basis.
 All costs necessary to secure customer orders and get the
finished product into the hands of customer. 2. Variable Costs
 Included in operating expenses
o Total variable costs vary directly in relation to the volume
 E.g. advertising, shipping, sales travel, sales commissions,
of production.
sales salaries and expenses associated with finished goods
o Total variable cost changes proportionately with the
warehouses.
activity (total variable costs increases as volume
2. General or Administrative Expenses increases, total variable cost decreases as volume
decreases)
 All executive, organizational and clerical expenses that
o Cost per unit remains constant as volume changes.
cannot be logically include under production or marketing.
o E.g. direct materials, direct labor, royalties and

commission of sales men.
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3. Mixed Costs Cost Classified as to their nature as common or joint

 Items of cost with fixed and variable components. Common Cost

2 Categories of mixed costs:  Costs of facilities or services that is employed in two or more
accounting periods, operations, commodities or services.
a) Semi-variable costs
 Subject to allocation
o The fixed portion represents minimum fee for
making a particular item or service available. Joint Cost
o Variable portion is cost charged for actually using the
service.  Cost of materials, labor or overhead incurred in the
o Cellphone plan manufacture of two or more products at the same time.
b) Step Costs  Subject to allocation
 Fixed portion changes abruptly at various activity
levels.
 Supervisors’ salary Cost Classified as to relation to accounting periods

1. Capital Expenditure
 Expenditure intended to benefit more than one accounting
Methods of separating mixed costs into fixed and variable period.
components  Recorded as an assets
I. High-Low Point Method (IC) 2. Revenue Expenditure

II. Method of Least Square (IC)  Expenditure that will benefit the current period only
 Recorded as an expenses
Steps:
1. Use the Equation 2 to derive function of a
Cost Classified as to relation to manufacturing departments
2. Use equation 3 to find b
3. Use the derived function of equation 2 in Substituting the 1. Direct Departmental Charges
value to compute for a  Costs that are immediately charged to a particular
4. Substitute the formula of high-low method or least square manufacturing department that incurred the costs.
method (equation 1).  Cost can be conveniently identified or associated with
the departments.
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2. Indirect Departmental Charges

 Cost originally charge to other manufacturing 3.3. Marginal Revenue
departments or accounts but later allocated or  Revenue obtained from selling one more unit of
transferred to other departments that indirectly product
benefited that costs.
3.4. Marginal Cost
Cost for Planning, Control and Analytical Process
 Cost involved in producing one more unit of products
1. Standard Costs
 Predetermine costs for direct materials, direct labor and 4. Relevant Costs
factory overhead.  A future cost that changes across alternatives
 Budget for the production of one unit of product or
services. 5. Out-of-pocket costs
 Benchmark of costs  Costs that require the payment of money or other
assets as a result of their incurrence.
2. Opportunity Costs 6. Sunk Costs
 The benefit given up when one alternative is chosen  A Cost for which an outlay has already been made
over other. and it cannot be changed by present or future
 If an asset can be used to perform only one function decision.
and cannot be sold or used, the opportunity costs of  Financial Investment that had already been made &
that assets is zero. cannot be recovered.

Controllable Costs
3. Differential Costs
 Cost that is present under one alternative but is absent  If at the particular level of management, that level has power
in whole or part under another alternative. to authorize the costs
 Can be either fixed or variable costs

3.1. Incremental Cost CHAPTER 3

 Increase of costs from one alternative to another

Manufacturing Inventory Accounts

3.2. Decremental Costs
 A decrease of cost
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 Most manufacturing companies uses perpetual Inventory 2. compute total manufacturing costs (work in process
approach, unless otherwise indicated. inventory)
3. compute total cost of goods manufactured (finished goods
inventory)
3 Accounts must be used:
4. compute Cost of goods sold – normal
1. Materials Inventory (Materials Inventory Control Account) 5. compute cost of goods sold – actual
 Made up of balances ng supplies and materials on hand
 When it is issued for use in production;  Recording labor costs for a manufacturing company
requires 3 journal entries:
2. Work in Process Inventory 1. Total Payroll liability of the company
 Direct labor, Direct Materials & Factory Overhead are 2. Payment of payroll liability
included here. 3. Accounting labor costs properly.
 When products are completed, their costs no longer belong  The wages earned by laborers working directly on the
to work in process. product are charged to work in process.
 The balance remaining in the work in process were products  The salaries and wages of the factory supervisor are charged
partly completed and still in process at the end of period. factory overhead control.
 Sales salaries and administrative salaries are charged to
3. Finished Goods Inventory (IC) selling and administrative expense control.
 All costs debited to the finished goods inventory represents
transfers form work in process inventory account.
 The balance in the finished goods inventory account is made Underapplied Factory Overhead
up of products that is completed but unsold.
 Unfavorable
 As the Cost of Goods sold increases, Gross profit decreases.
 Factory Overhead control > Factory Overhead applied
Statement of Cost of Goods Manufacture and Sold
Overapplied Factory Overhead
 Summary of the major manufacturing costs such as direct
material, direct labor, factory overhead and work-in-place  Favorable
(WP) account.  As COGS decreases, Gross profit increases
 Factory Overhead Control < Factory Overhead Applied
4 steps:
1. Compute the cost of materials used (materials inventory)