AE22 -Cost Accounting and

Control
 Course Outline
1. Basic Concepts and the Job Order Costing
2. Materials Inventory
3. Labor Accounting
4. Manufacturing Overhead
5. Activity Based Costing
6. Cost Cycle
7. Process Costing
8. Average Costing
9. Production Report
 Course Outline
10. Joint and By-Products
11. Standard Casting
12. Just-In-Time Costing
 References
• Cost Accounting – Pedro P. Guerrero
• Cost Accounting – Guillermo M De Leon Jr.,
et.al.
I. Introduction to Cost
Accounting
 Introduction to Cost Accounting
• Objective of Accounting – to provide financial
information about an economic entity to
different types of users
• Users of financial information:
– Internal - managers for planning, controlling and
decision making
– External – government, providers of funds and
others who have interests in the operating of the
entity
 Introduction to Cost Accounting
• Cost Accounting – expanded phase of general
or financial accounting which informs
management promptly with the cost of
rendering a particular service, buying and
selling a product, and producing a product.
• It is the field of accounting that measures,
records and reports information about costs.
• Cost - amount of money that is needed in
order to buy, do or make a product
 Introduction to Cost Accounting
• All types of business entities – manufacturing,
merchandising, and service businesses –
require information systems which provide
the necessary financial data.
• Manufacturing companies – requires
structured cost accounting systems that would
show what costs were incurred and where and
how these costs were utilized.
 Introduction to Cost Accounting
Nature of Manufacturing Process:
• Similar to merchandising business, both is
concerned with purchasing, storing, and
selling goods
• Similar to merchandising business, both must
have efficient management and adequate
sources of capital
• Similar to merchandising business, both may
employ hundred or thousands of workers
 Introduction to Cost Accounting
Nature of Manufacturing Process:
• Distinction: It involves the conversion of raw
materials into finished goods through the
application of labor and the incurrence of
various factory expenses.
• The methods of accounting of sales, cost of
goods sold, and selling and administrative
expenses are also similar to those of the
merchandising organization.
 Introduction to Cost Accounting
Comparison:
Financial Accounting – accounting information
usually for external users
Managerial Accounting – internal users
Cost Accounting – intersection between financial
and managerial accounting
 needed in both FA and MA
Provides cost info to external parties – stockholders,
creditors and regulatory agencies
Provides cost info to internal parties – managers for
planning and controlling
 Introduction to Cost Accounting
Merchandising versus Manufacturing Operations

• Merchandising company usually buys a product

that is ready for resale when it is received.
Merchandise inventory, beg. P 30,000
Add: Purchases 216,700
Cost of goods available for sale 246,700
Less: Merchandise inventory, end. 33,600
Cost of Goods Sold P213,100
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Introduction to Cost Accounting
MERCHANDISING
Sales 305,000.00
Less: Cost of goods sold
Mdse inventory, June 1 30,000.00
Add: Purchases 216,700.00
Total Goods Available for sale 246,700.00
Less: Mdse inventory, June 30 33,600.00
Cost of goods sold 213,100.00
Gross profit 91,900.00
Less: Operating expenses
Selling expenses 20,000.00
Administative expenses 15,000.00
Total operating expenses 35,000.00
Net income before income tax 56,900.00
Income tax 16,800.00
Net income 40,100.00
Introduction to Cost Accounting
MANUFACTURING
Direct materials
Materials inventory, June 1 50,000.00
Materials Purchases 86,900.00
Total Materials Available 136,900.00
Less: Materials inventory, June 30 46,500.00
Total materials Used 90,400.00
Less: Indirect materials used 5,800.00
Direct materials used 84,600.00
Direct Labor 66,500.00
Manufacturing overhead applied 53,200.00
Total manufacturing cost 204,300.00
Add: Work in process, June 1 40,000.00
Total cost of goods placed in process 244,300.00
Less: Work in process, June 30 27,600.00
Cost of goods manufactured 216,700.00
Add: Finished goods inventory, June 1 30,000.00
Total goods available for sale 246,700.00
Less: Finished goods inventory, june 30 33,600.00
Cost of goods sold 213,100.00
Introduction to Cost Account
Income Statement
For the month ended 30 June 2020

Sales 305,000.00
Less: Cost of goods sold
Finished goods inventory, June 1 30,000.00
Add: Cost of goods manufactured 216,700.00
Total goods available for sale 246,700.00
Less: Finished goods inventory, june 30 33,600.00
Cost of goods sold 213,100.00
Gross profit 91,900.00
Less: Operating expenses
Selling expenses 20,000.00
Administative expenses 15,000.00
Total operating expenses 35,000.00
Net income before income tax 56,900.00
Income tax 16,800.00
Net income 40,100.00
Introduction to Cost Accounting
Uses of Cost Data:
1. Determining Product Costs – to determine
selling price, meeting competition, bidding on
contracts or analyzing profitability
2. Planning and Control – strategic, tactical and
operations planning
Control – the process of monitoring company’s
operations and determining whether the
objectives identified in the planning process are
being accomplished
 Introduction to Cost Accounting
Two Basic Product-Costing Systems:
• Job order costing – a system for allocating costs
to groups of unique product. A subsidiary record
(job order cost sheet) is needed to keep track of
all unfinished job (work in process) and finished
goods (finished goods).
Ex: manufacturing of special machines
• Process costing – a system applicable to a
continuous process of production of the same or
similar goods.
Ex: oil refining and chemical production
 Introduction to Cost Accounting
PROCESS COSTING JOB ORDER COSTING
Homogenous units pass through a series Unique jobs are worked on during a
of similar process. period of time.
Cost are accumulated by process Cost are accumulated by individual job.
department.
Unit costs are computed by dividing the Unit costs are determined by dividing the
individual departments’ costs by the total costs on the job cost sheet by the
equivalent production. number of units on the job.
The cost of production report provides The job cost sheet provides the detail for
the detail for the Work in Process account the Work in Process acount.
for each department.
Homework
 Discussion Questions
1. Differentiate financial from management
accounting.
2. Discuss the relationships between goals,
planning and controls.
3. Discuss the relevance of Cost Accounting
4. Differentiate job order costing from process
costing
5. What are the elements of production costs?
 True or False Questions
1. Reports prepared in financial accounting are
general-purpose whereas reports prepared in
managerial accounting are usually special-
purpose reports.
2. Managerial accounting internal reports are
prepared more frequently than are classified
financial statements.
3. Determining the unit cost of manufacturing a
product is an output of financial accounting.
4. Management accounting applies to all forms of
business organizations.
 True or False Questions
5. Controlling is the process of determining
whether planned goals are being met.
6. Managerial accounting information genrally
pertains to an entity as a whole and is highly
aggregated.
7. Job Order costing system is for allocating costs
to group of unique product and is applicable to
the production of customer specified products
such as the manufacture of special machine.
 True or False Questions
8. Process costing is used by companies making
one-of-a-kind products.
9. Operation costing is a hybrid costing system
often used in repetitive manufacturing where
finished products have common as well as
distinguished characteristics.
10. Cost accounting procedures help management
in gathering the data needed to determine
product costs and thus generate meaningful
fianancial statements and other reports.