ACC 603 COST ACCOUNTING AND CONTROL

Atty. Lady Ann L. Tablatin, CPA, MBA

Page 1: Course Introduction

• ACC 603 COST ACCOUNTING & CONTROL

Page 2: Subject Orientation

• Objective of Lecture:

  • Understand the purpose of Cost Accounting.

  • Enumerate the lessons and topics covered in Cost Accounting.

Page 3: Overview of Cost Accounting and Control

• Focus: Technical methodologies for calculating product and service costs.

• Goals:

  • Proper reporting in financial statements.

  • Enhancing economic decision-making.

Page 4: Course Topics

1. Introduction to Cost Accounting

2. Cost Terminologies, Concepts, Behaviors, and Accounting Process

3. Cost Accounting – Materials

4. Cost Accounting – Labor

5. Cost Accounting – Overhead

6. Activity Based Costing and Management

Page 5: Introduction to Cost Accounting

• Learning Outcomes:

  1. Define cost accounting: its nature and purpose.

  2. Differentiate between Financial Accounting and Management Accounting.

  3. Explain the relationships between Financial, Cost, and Management Accounting.

  4. Correlate organizational strategies with cost information.

  5. Elaborate on value chain activities.

Page 6: Definition of Cost Accounting

• Cost Accounting involves recording and summarizing expenditures related to the company’s activities, including all costs associated with processes, products, or services provided and sold.

Page 7: Comparison of Financial and Management Accounting

• Requirements:

  • Financial Accounting: Information system for economic events to external users.

  • Managerial Accounting: Focuses on providing information for planning and control to managers.

• Users:

  • Financial: External decision-makers.

  • Managerial: Internal management.

• Time Focus:

  • Financial: Historical perspective.

  • Managerial: Future emphasis.

• GAAP Compliance:

  • Financial: Must comply with GAAP.

  • Managerial: Does not need to comply with GAAP.

Page 9: Example of Merchandising Operations

• Cost Calculation:

  • Beginning Merchandise Inventory: P 5,000.00

  • Total Purchases: P 24,000.00

  • Goods Available for Sale: P 29,000.00

  • Ending Merchandise Inventory: P 6,500.00

  • Cost of Goods Sold: P 22,500.00

Page 10: Calculation of Ending Inventory and COGS

• Company Policy: P 10,000 mark-up per total purchases; Financial record: P 30,000.

• Calculation:

  1. Beginning Merchandise Inventory: P 10,000.00

  2. Total Purchases: P 30,000.00

  3. Goods Available for Sale: P 40,000.00

  4. Ending Merchandise Inventory: (To be computed)

  5. Cost of Goods Sold: (To be computed)

Page 11: Reports Identification

• Identify as Financial or Managerial Accounting Reports:

  1. Balance Sheet: Financial

  2. Performance Report (Bank branches): Managerial

  3. Income Statement: Financial

  4. Annual Comparison of Yearly Income: Financial

  5. Statement of Cash Flow: Financial

Page 12: Chapter 1 - Introduction to Cost Accounting

Page 13: Uses of Cost Accounting Data

• Provides a basis to determine product costs.

• Aids management in planning and control of operations.

Page 14: Determining Product Costs

• Cost Accounting Procedures:

  • Collect data for unit and total product costs.

  • Example: Labor expenses of P 10,000 for a month.

Page 15: Marketing Decisions

• Unit Cost Information aids in:

  1. Determining selling prices.

  2. Meeting competition.

  3. Bidding on contracts.

  4. Analyzing profitability.

Page 16: Planning and Control Functions

• Cost accounting supports management in planning and controlling operations:

  • Components of Planning:

    1. Strategic planning

    2. Tactical planning

    3. Operations planning

Page 17: Basic Product-Costing Systems

1. Job Order Costing:

   • Allocates costs to unique product groups.

   • Applicable for customized products.

2. Process Costing:

   • Suitable for continuous production of similar goods (e.g., oil refining).

Page 18: Job Order Cost Accounting System

• Used for one-of-a-kind products.

• Costs associated with job orders include:

  • Direct materials

  • Direct labor

  • Factory overhead

Page 19: Characteristics of Job Order Cost System

• Collects manufacturing costs for specific jobs.

• Measures costs per completed job without time period focus.

• Uses a single Work in Process Inventory Control account featuring job order cost cards.

Page 20: Characteristics of Process Costing

• Product costing for uniform product manufacturing.

• Costs are accumulated by department rather than individual jobs.

Page 21: Main Characteristics of Process Cost Accounting

1. Manufacturing costs grouped by department.

2. Emphasis on time periods over specific orders.

3. Multiple work-in-process inventory accounts per department.

Page 22: Hybrid Costing Systems

• Production systems combining job-order and process costing elements.

Page 23: Key Differences: Process vs. Job Order Costing

1. Unit Characteristics:

   • Process: Homogeneous

   • Job Order: Unique jobs

2. Cost Accumulation:

   • Process: By processing department

   • Job Order: By individual job

3. Cost Reports:

   • Process: Cost of production report

   • Job Order: Job cost sheet

Page 24: Chapter 2 - Cost Concepts and Classification

Page 25: Exercise on Electricity Costs and Direct Labor Hours

• Data on direct labor hours and electricity costs breaks down by month.

• Calculation Goals: Variable rates and costs using High-Low Point Method and Least-Square Method.

Page 27: Joint Cost

• Represents shared costs for producing multiple products.

• Not easily assignable, requiring allocation methods.

Page 28: Capital Expenditure vs. Revenue Expenditure

• Capital Expenditure: Benefits multiple accounting periods.

• Revenue Expenditure: Benefits current period only.

Pages 29 - 30: Direct vs Indirect Charges

• Direct Departmental Charges: Costs charged immediately to manufacturing departments.

• Indirect Departmental Charges: Assigned costs not immediately identifiable.

Page 31: Costs for Planning and Control Processes

• Standard Costs: Budgeted costs for production; used for budgeting control.

• Opportunity Cost: Cost of foregone alternatives.

Page 33: Controllable vs. Non-Controllable Costs

• Controllable costs can be authorized at the management level.

• Non-controllable costs have already been incurred.

Page 34: Chapter 3 - Cost Accounting Cycle

Page 35: Merchandise Inventory vs. Materials Inventory

• Figures show the movement of merchandise and materials throughout the accounting period.

Page 38: Cost of Goods Sold Calculation

• Formula:

  • For Merchandising: Beginning Inventory + Purchases - Ending Inventory

  • For Manufacturing: Similar structure with Cost of Goods Manufactured.

Page 39: Elements of Manufacturing Cost

1. Direct Materials

2. Direct Labor

3. Factory Overhead

Page 40: Factory Overhead Components

• Includes indirect materials, indirect labor, and other manufacturing expenses.

Page 42: Manufacturing Cost Flow

• Overview of the flow of costs within production processes and stages.

Page 43: Statement of Cost of Goods Manufactured and Sold

• 4-Step Process: Computation of material costs, adjustments to inventory.

Page 44: Cost Accounting Cycle in Practice

• Overview of Noeled Products Company's manufacturing processes.

Page 47: Payroll and Depreciation Entries

• Illustrates tracking of payroll and depreciation expenses on accounting records.

Page 52: Manufacturing Costs Breakdown

• Analysis of costs incurred for finished goods.

  • Selling price determination based on gross profit margin.

Page 57: Financial Statements Preparation

• Final financial statements derived from the trial balance.

Page 59: Balance Sheet Composition

• Breaking down assets, liabilities, and stockholders' equity.

Page 60: Chapter IV - Job Order Costing

• Explanation of job order costing methods.

Page 62: Job Order Cost Sheet Details

• Description of records tracking order specifications and costs.

Page 63: Major Source Documents

• Various documentation involved in job order costing process.

Page 71: Accounting Procedures for Materials

1. Recording purchases, issuing, and returns of materials require distinct entries.

Page 74: Labor Accounting Procedures

• Overview of payroll-related accounting entries and their classifications.

Page 76: Factory Overhead Accounting

• Accumulating overhead costs and their applications.

Page 89: Work in Process Control Account

• Managing costs as jobs progress through production phases.

Page 91: Finished Goods Control Account

• Reflection of finished goods available for sale throughout the period.

Page 92: Cost of Goods Sold Accounting

• Aggregating costs associated with inventory sold during a given period.

Page 93: Illustrative Problem Overview

• Real-world scenario example of accounting entries for inventory and costs.

Page 102: Cost of Production Report Example

• Breakdown of various costs involved in production across departments.

Page 103: Chapter V - Process Costing

• Introduction to accounting practices for items produced in mass quantities.

Page 105: Companies Utilizing Process Costing

• Examples include various large-scale manufacturers across industries.

Page 110: Different Product Flow Methods

• Describes flow methodologies in production processes including sequential, parallel, and selective approaches.

Page 117: Cost of Production Report

• Analysis of costing within departments providing a clear outline of costs.

Page 125: Computation Techniques

• Approaches such as FIFO and Weighted Average for determining equivalent costs in production.

Page 134: Departmental Costing in Practice

• Details illustrating the computation of equivalent costs for materials, labor, and overhead in a production setting.