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Introduction to Cost Accounting Concepts

This document provides an introduction to cost accounting, covering key topics such as: 1) The differences between cost accounting and financial accounting in terms of users, reporting frequency, legal requirements, and time dimension. 2) Classification of costs by nature into direct/indirect materials, direct/indirect labor, and direct/indirect expenses. 3) Classification of costs by function into production, administration, selling and distribution costs. 4) Classification of costs by behavior into fixed, variable, mixed, and step costs. 5) Responsibility centers including cost centers, profit centers, and investment centers. 6) Key cost accounting concepts like cost units and the preparation of cost statements.

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NUR IZZATY ALIAH SAMIA'AN
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53 views20 pages

Introduction to Cost Accounting Concepts

This document provides an introduction to cost accounting, covering key topics such as: 1) The differences between cost accounting and financial accounting in terms of users, reporting frequency, legal requirements, and time dimension. 2) Classification of costs by nature into direct/indirect materials, direct/indirect labor, and direct/indirect expenses. 3) Classification of costs by function into production, administration, selling and distribution costs. 4) Classification of costs by behavior into fixed, variable, mixed, and step costs. 5) Responsibility centers including cost centers, profit centers, and investment centers. 6) Key cost accounting concepts like cost units and the preparation of cost statements.

Uploaded by

NUR IZZATY ALIAH SAMIA'AN
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Introduction to Cost Accounting
  • Topic Outcome
  • Introduction
  • Financial vs. Costing
  • Cost Classification
  • Cost Units & Responsibility Center
  • Cost Statements

INTRODUCTION TO

COST ACCOUNTING
ACC416 : CHAPTER 1
TOPIC OUTCOME:

• Differences between COST & FINANCIAL Accounting


• Cost classification by nature, function and behavior
• Cost Statement
• Cost units, Responsibility center (cost centers, profit
centers, investment centers)
• Segregation of mixed cost using High and Low method
INTRODUCTION

3
1. FINANCIAL VS COSTING
FINANCIAL ACCOUNTING COSTING

Users Orientation Internal and External parties (Investors, Internal parties (Owner, manager,
Bankers) employee)
Reporting Governed by Company Act 1965 and the No legal requirement
requirement preparation of the financial statements are
accordance to FRS
Reporting Entity Report for the company as a whole Report based on different
segments and parts of the
company
Reporting Frequency Annually or semi-annually Depend on the management –
weekly, monthly, quarterly or
annually
Information Time Past information Past, present and future
Dimension
Degree of Accuracy Accurate because its reports the past events Since focus on future, estimation
amount is considered sufficient

Freedom of Choice Restricted Complete freedom


4
JUNE 2014

B. Explain the differences between Financial Accounting


and Cost & Management Accounting for the following
categories:

i. Users of accounting information


[Link] frequency
iii. Legal requirements
iv. Time dimension
(4 marks)
2. COST CLASSIFICATION
A. COST ACCORDING
TO NATURE
ELEMENTS OF COSTS

MATERIALS
• Direct materials – all materials that can be physically identified
with a specific product.
• Indirect materials – items of material that cannot be
physically identified with a specific product.
LABOUR
• Direct labour – labour costs that can be traced or identified with
a particular product.
• Indirect labour – wages of employees who do not work on the
product itself, just assist in the manufacturing operation.

• E.g. Carpenter S Supervisor


EXPENSES
• Direct expenses – expenses which are incurred specifically
to a particular product.
• Indirect expenses – all other costs needed to operated a
factory which is not charged directly to the product.

Direct
DEC 2014
[Link] the following cost items into direct material, indirect
material, direct labour, indirect labour, direct expense or indirect
expense of a bakery shop.

i. wages of chef or baker.


ii. flour and eggs use in making red velvet cakes.
iii. electricity and utility consume in baking the breads and
cakes.
iv. salary of an accountant.
v. hiring of two units of special ovens for baking the two tiers
wedding cakes.
vi. chocolate rice and whipped cream used in decorating the
birthday cakes.
(3 marks)
B. COST ACCORDING TO
FUNCTION
C. COST ACCORDING TO BEHAVIOUR:
There are FOUR (4) types of cost:

a) Fixed Cost: Cost that will


not change over a given
range of activity and period
of time. (Depreciation, rental
and insurance)

b) Variable cost: Cost that


vary in direct proportion to
changes in the level of
production. (Material costs
and labour costs)

13
c) Mixed cost: cost that
contain both fixed and
variable cost (telephone bills)

d) Step cost: cost that are


fixed over a range of activity
and then rise to a new level as
activity level changes
(supervisory salaries)

14
DEC 2014

A. Classify the following cost according to its behavior:

i. Depreciation of a special machine used to cut woods


into square shapes. Depreciation is provided on a
straight line basis.
ii. Steering wheel installed in cars.
iii. Telephone rental plus metered calls, used in the
administration office.
iv. Monthly salary of the production supervisor. The
nature of the supervisor’s job is such that he could
only supervise not more than 20 workers. If the
number of workers exceed 20, another supervisor
need to be employed.
(4 marks)
3. Cost units &
Responsibility center

16
CLASSIFICATION OF COST CENTRE

17
COST UNITS:
❑Direct cost – cost that can be directly traced to produce goods and services
(woods in producing furniture, operators working in a factory, hire of special machine
required in production)
❑Indirect cost – cost that are not directly related to produce goods and
services/overhead cost

PRIME
COST

OVERHEAD
COST

18
4. COST STATEMENTS

19

INTRODUCTION TO COST ACCOUNTING ACC416 : CHAPTER 1
TOPIC OUTCOME: • Differences between COST & FINANCIAL Accounting • Cost classification by nature, function and behavior • Cos
INTRODUCTION 3
1. FINANCIAL VS COSTING 4 FINANCIAL ACCOUNTING COSTING Users Orientation Internal and External parties (Investors, Bankers)
JUNE 2014 B. Explain the differences between Financial Accounting and Cost & Management Accounting for the following catego
2. COST CLASSIFICATION
A. COST ACCORDING TO NATURE
ELEMENTS OF COSTS MATERIALS • Direct materials – all materials that can be physically identified with a specific product. •
LABOUR • Direct labour – labour costs that can be traced or identified with a particular product. • Indirect labour – wages
EXPENSES • Direct expenses – expenses which are incurred specifically to a particular product. • Indirect expenses – all oth

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