COST ACCOUNTING
BALIAN COMMUNITY COLLEGE
AY 2022-2023
COURSE DESCRIPTION
Product costing is essential to entities in manufacturing goods and providing services. It is important to
determine the cost of a product or line of service ass one of the bases for setting a price that will cover all the
entity’s expenses and yield the desired profit. Understanding and analysis of cost accounting reports also helps
management better evaluate entity’s performance for the formulation of operational decisions. This course equips
the learners with a thorough understanding of cost concepts, just-in-time system, and cost of implementing
quality, environmental cost management and application of various costing methods such as activity based, job
order, process, and standard costing.
REFERENCES
SIR KEVIN TROY CHUA’S ACCOUNTING LESSONS PH
PRINCIPLES OF COST ACCOUNTING
Edward R. Vanderbeck
Maria R. Mitchell
Photos credited to Owners
COURSE OBJECTIVES
At the end of the course, you should be able to:
1. Define what cost accounting is, its nature and purpose.
2. Differentiate Financial Accounting from Management Accounting.
3. Explain the relationships between Financial, Cost and Management Accounting.
4. Explain the relationship of organizational strategies and cost information.
5. Explain value chain activities.
6. Explain what product costs are. (Materials, Labor, Overhead)
7. Differentiate prime costs, conversion costs and manufacturing costs.
INTRODUCTION
Relationship between Financial,
Financial Accounting vs
Cost and Management
Managerial Accounting
Accounting
Definition,
Nature and
Purpose
Relationship of Organizational
Strategies and Cost Value Chain Activities
Information
INTRODUCTION
Cost accounting is a branch of accounting that
deals with the process of recording and summarizing
the amount of cost that is spent on the company’s
DEFINITION, NATURE activities. It includes all costs of process, product or
AND PURPOSE service used, provided and sold.
It examines the cost structure of a business. It does
so by collecting information about the costs
incurred by a company's activities, assigning selected
costs to products and services and other cost
objects, and evaluating the efficiency of cost usage.
What is COST ACCOUNTING? Cost accounting is mostly concerned with
developing an understanding of where a company
earns and loses money, and providing input into
decisions to generate profits in the future.
RELATIONSHIP BETWEEN
FINANCIAL , COST AND MANAGERIAL ACCOUNTING
FINANCIAL ACCOUNTING MANAGERIAL ACCOUNTING
is an information system that identifies records and an accounting system by which information are
communicates the economic events of an organization presented and supplied to management in appropriate
to interested user.
manner to operate business smoothly and efficiently.
Used by external persons who make financial decisions
Used by managers who plan for and control an
Historical perspective organization
Emphasis on verifiability
Future emphasis
Primary focus is on the whole organization
Emphasis on timeliness
Must follow GAAP and prescribed formats
Mandatory for external reports Focuses on segments of an organization
Need not follow GAAP and prescribed formats
Not mandatory
RELATIONSHIP BETWEEN
FINANCIAL , COST AND MANAGEMENT ACCOUNTING
FINANCIAL COST MANAGEMENT
ACCOUNTING
ACCOUNTING ACCOUNTING
RELATIONSHIP OF ORGANIZATIONAL STRATEGIES AND COST
INFORMATION
A company formulates a mission statement- the reason for the company’s existence.
The organization of the organization’s strategy roots from its mission statement.
Organizational strategy is the plan of action on how the entity will attain and realize its goals and objectives with the
use of their own resources that will be able to contribute to the creation of value both to the customers and
shareholders.
One of the ways an entity can attain competitive advantage is through cost leadership- the ability of an entity to
provide the lowest prices in the market through proper management of costs.
Cost leadership differs from product differentiation in the perspective of providing unique products to be offered to
the market where prices can be allowed to be relatively higher.
To become a cost leader, costs shall be managed well.
In order for costs to be managed well, Cost Accounting information is now of paramount importance- the
entity’s cost accountants now play a vital role in the value creation process of the entity.
RELATIONSHIP OF ORGANIZATIONAL STRATEGIES AND COST
INFORMATION
COST LEADER
MORE PEOPLE
LOWER PRICES
WILL BUY
PROPERLY LOWER COST
ADDED VALUE
MANAGED OF
TO ENTITY
COSTS PRODUCTION
VALUE CHAIN ACTIVITIES
Design
Customer
A value chain is a set of activities an Supply
Service
entity applies to be able to deliver a
valuable product to customers. Research and
Development
Value chain is a set of activities or
functions that allows the conversion of
inputs into useful products and services. Distribution Production
Marketing
VALUE CHAIN ACTIVITIES
Design
Customer
Supply
RESEARCH AND DEVELOPMENT Service
Analysis, testing, and studying of different
Research and
methodologies of cost reduction or quality Development*
improvement
Distribution Production
Marketing
VALUE CHAIN ACTIVITIES
Design*
Customer
Supply
Service
DESIGN*
Creation and development of product and service Research and
Development
design fit for the market.
Distribution Production
Marketing
VALUE CHAIN ACTIVITIES
Design
Customer
Supply*
Service
SUPPLY*
Proper management of raw materials inventory Research and
Development
coming from suppliers.
Distribution Production
Marketing
VALUE CHAIN ACTIVITIES
Design
Customer
Supply
Service
PRODUCTION*
The process of acquisition and construction of Research and
Development
company resources to create products and services.
Distribution Production
Marketing
VALUE CHAIN ACTIVITIES
Design
Customer
Supply
Service
MARKETING*
Promotions made by an entity to make the product Research and
Development
or service attractive in the market.
Distribution Production
Marketing*
VALUE CHAIN ACTIVITIES
Design
Customer
Supply
Service
DISTRIBUTION*
Process of delivery of products and services to Research and
Development
customers.
Distribution* Production
Marketing
VALUE CHAIN ACTIVITIES
Design
Customer
Supply
Service*
CUSTOMER SERVICE*
Research and
After-sales support for customers Development
Distribution Production
Marketing
(noun) an amount that has to be paid or spent to buy or obtain something
"each issue of the magazine costs $2.25"
WHAT IS A COST?
A cost reflects the amount of resources sacrificed in order
for the company to achieve a certain objective such as the
creation of goods or rendering of services in order to earn
revenue.
HOW THINGS ARE MADE
CAPITAL-INTENSIVE LABOR-INTENSIVE
MACHINES HUMANS
COSTS AS TO CLASSIFICATION IN THE FINANCIAL STATEMENTS-
PRODUCT COSTS
DIRECT MATERIALS
MATERIALS
INDIRECT MATERIALS
PRODUCT
OVERHEAD
DEPRECIATION, INSURANCE,
REPAIRS AND MAINTAINANCE,
COST FACTORY UTILITIES
INDIRECT LABOR
LABOR
DIRECT LABOR
COSTS AS TO CLASSIFICATION IN THE FINANCIAL STATEMENTS-
PRODUCT COSTS
MATERIALS DIRECT MATERIALS
PRIME
COST
LABOR DIRECT LABOR
COSTS AS TO CLASSIFICATION IN THE FINANCIAL STATEMENTS-
PRODUCT COSTS
INDIRECT MATERIALS
CONVERSION DEPRECIATION, INSURANCE,
OVERHEAD REPAIRS AND MAINTAINANCE,
COST FACTORY UTILITIES
INDIRECT LABOR
LABOR
DIRECT LABOR
COSTS AS TO CLASSIFICATION IN THE FINANCIAL STATEMENTS-
PRODUCT COSTS
INDIRECT MATERIALS
CONVERSION DEPRECIATION, INSURANCE,
OVERHEAD REPAIRS AND MAINTAINANCE,
COST FACTORY UTILITIES
INDIRECT LABOR
LABOR
DIRECT LABOR
COSTS AS TO CLASSIFICATION IN THE FINANCIAL STATEMENTS-
PRODUCT COSTS
PRIME
COST
MANUFACTURING
COST OVERHEAD
COSTS AS TO CLASSIFICATION IN THE FINANCIAL STATEMENTS-
PRODUCT COSTS
MATERIALS DIRECT MATERIALS
MANUFACTURING
COST
CONVERSION
COST