I.
Introduction to Cost Accounting
- Expanded phase of financial accounting which
informs management with the cost of rendering
service, buying and selling and producing a product.
Financial vs. Managerial vs. Cost accounting
Financial accounting
- Primarily concerned with the financial statements for
external use by those supply funds to the entity and
other persons who may have vested in the financial
operations.
- Reports focus on the entity as a whole.
- Transactions are based on historical transaction data
Figure 1.1: Purchases unused will stay in materials
Managerial accounting inventory end. Cost of DM, DL and FOH will be
- Commonly addresses individual or divisional transferred to WIP when used. When an order or batch is
concerns rather than those as a whole. completed, manufacturing cost are transferred to finished
- Data are futuristic. goods inventory. Those that remain to WIP are partly
- Focuses on the timeliness of information. unfinished goods. When goods are sold, they are
Cost accounting transferred to cost of goods sold. Those that remain in
- Intersection of financial and managerial accounting. FGI are unsold goods.
- Provides information to both external and internal
parties. Uses of cost accounting data
1. Determining product cost
Merchandise operations Determine the selling price
Beginning merchandise inv. Meeting competition
Add: Purchases Bidding on contracts
= Cost of goods available for sale Analysing profitability
Less: Ending merchandise inv. 2. Planning and control
= Cost of goods sold Planning- establishing objectives for the firm and
determining the means to meet them
In the balance sheet preparation
a. Strategic planning- long range goals
Cost of unsold items from COGAFS will go to ending
b. Tactical planning- shorter range
merchandise inventory.
c. Operations planning- relates to day to day
implementation
In the income statement operation
Cost of sold/old items from COGAFS will go to cost of
Two basic product-costing system
goods sold.
1. Job order costing
- For allocating cost of unique products.
Manufacturing operations
- Measure cost for each completed job.
- Manufacturer divides inventory into three accounts:
- Uses one work in process inventory control account.
materials inv., work in process inv., and finished
- Unit cost are determined by dividing the total cost
goods inv.
on the job cost sheet by the number of units on the
job.
2. Process costing
- Applicable to continuous process of production of
the same or similar goods.
- Several WIP inventory control account.
- Unit cost are computed by dividing the individual
department’s costs by the equivalent production.
Note: generally process costing record keeping is lower
than job costing but not all the time. However, process
costing does not provide as much information as job
order costing.
Operations costing- hybrid costing system often used in
repetitive manufacturing where finished products have
common, as well as distinguishing characteristics.
