CHAPTER I. INTRODUCTION TO COST ACCTG.

Comparison of Financial, Managerial and Cost Accounting

2 BASIC PRODUCT–COST SYSTEMS

1. Job order costing – system for allocating costs to groups of unique

product.
2. Process costing – system applicable to continuous process of
products of the same or similar goods.

RELATIONSHIPS BETWEEEN COSTING SYSTEMS

 MAJOR DIFFERENCE BETWEEN PROCESS &

JOB ORDER COSTING

PROCESS JOB ORDER

COSTING COSTING
1.Homogenous units pass through a series of similar
process. 1. Unique jobs are worked on during time period.
2. Costs are accumulated by individual job.

2.Cost are accumulated by processing department.

3. Unit cost are computed by dividing the individual
departments ' costs by the equivalent production

3. Unit costs are determined by deviding the total

costs on the job cost sheet by the number of units
on the job.

Chapter 2. COSTS- CONCEPTS AND CLASSIFICATION

CLASSIFICATION OF COSTS

I. Costs classified as to relation to a product

A. Manufacturing costs/ product costs
1. Diresct Materials
2. Direct Labor
3. Factory Overhead
B. Non Manufacturing costs / period costs
1. Marketing or selling expenses
2. General or Administrative expense
II. Costs classified as to variability
A. Variable costs
B. Fixed costs
C. Mixed costs
III. Costs classified as to relation to manufacturing departments
A. Direct departmental charges
B. Indirect departmental charges
IV. Costs classified to their nature as commmon or joint
A. Common costs
B. Joint costs
V. Costs classified as to relation to an accounting period
A. Capital expenditure
B. Revenue expenditure
VI. Costs for planning, control, and analytical processess
A. Standard costs
B. Opportunity costs
C. Differential costs
D. Relevant costs
E. Out-of-pocket costs
F. Sunk costs
G. Controllable costs
Chapter 3. COSTS ACCOUNTING CYCLE

MANUFACTURING INVENTORY ACCOUNT

Materials Inventory- made up of the balances of materials and

supplies on hand.
Work In Process Inventory- all manufacturing costs incurred and
assigned to products being produced.
Finished Goods Inventory- costs of materials moved from the Work
In Process account to Finished Goods.

ELEMENTS OF MANUFACTURING COST

1. Direct Materials
2. Direct Labor
3. Factory Oveerhead
 Chapter 4 COST-VOLUME= PROFIT ANALYSIS

Costs-volume-profit (CVP) analysis- estimates how changes in

costs, sales volume, and price affect a company’s profit.

CVP analysis help managers answers several questions such as

 The number of units sold to be sold to break even
 The effect of changes in the fixed cost on the break even
point
 The effect of changes in the sales price on the break even
point.

BEP FORMULAS

BEP(UNIT)=TOTAL FIXED COSTS

SALES- VARIABLE COST
BEP(PESOS)= TOTAL FIXED COST
CONTRIBUTION MARGIN

MARGIN OF SAFETY FORMULAS

MOS = CURRENT SALES - BEP

MOS RATIO= MARGINOF SAFETY
TOTAL SALES

CHAPTER 5 JOB ORDER COSTING

MAJOR SOURCE DOCUMENTS FOR JOB ORDER COSTING

1. JOB ORDER COST SHEET

2. MATERIALS STOCKCARD
3. FINISHED GOODS STOCKCARD
4. FACTORY OVERHEAD CONTROL COST RECORD
5. MATERIALS REQUISITION, TIME TICKET AND CLOCK CARD
 CHAPTER 6 JUST IN TIME AND BACFLUSH ACCTG.

Just in time costing- differs from traditional costing with regards to the
accounts used and the timing of cost recording.

Backflushing- shortened version of the traditional method of accounting

for cost.

 The porpuse of backflush costing is to simplify and to reduce the

number of events that are measured and recorded in the accounting
sytem.

CHAPTER 7 ACCOUNTING FOR MATERIALS

COMMONLY USED CONTROL PROCEDURES

1. Order cycling
2. Min-max method
3. Two-bin method
4. Automatic order system
5. ABC plan

METHODS OF COMPUTING ECONOMIC ORDER QUANTITY (EOQ)

1. Tabular Method- under this method, several purchase order

quantity alternative are listed in separate columns.
2. Formula Method

EOQ= √2CN
K

BUSINESS PAPERS USED TO SUPPORT MATERIAL TRANSACTIONS

1. Purchase Requisition
2. Purchase Order
3. Receiving Report
4. Materials Requisition Slip
METHODS OF COSTING MATERIALS

1. First- in, first –out (fifo)

2. Average cost

CHAPTER 8 ACCOUNTING FOR FACTORY OVERHEAD

3 CATEGORIES FOH COST

1. Variable factory overhead cost

2. Fixed factory overhead cost
3. Mixed overhead

FACTORS TO BE CONSIDERED IN THE COMPUTATION OF

OVERHEAD RATE

1. BASE TO BE USED
a. Physical Output
b. Direct Materials cost
c. Direct Labor cost
d. Direct Labor hours
e. Machine hours

2. ACTIVITY LEVEL TO USE

a. Normal capacity
b. Expected Actual capacity

3. INCLUSION OR EXCLUSION OF FIXED FACTORY OVERHEAD

a. Absorption costing
b. Direct costing

4. USE OF SINGLE RATE OR SEVERAL RATES

a. Plant-wide or blanket rate
b. Departmentalize rate
 METHODS OF ALLOCATING SERVICE DEPARTMENT COST TO
PRODUCING DEPARTMENTS

1. DIRECT METHOD
2. STEP METHOD
3. ALGEBRAIC METHOD

Classification of manufacturing overhead variance

a. Under applied overhead

b. Over applied overhead

CHAPTER 9 ACCOUNTING FOR LABOR

EMPLOYER’S PAYROLL TAXES

SSS CONTRIBUTION- requires employers to pay social security on wages

and salaries equivalent to approximately 4% of the total contribution
credited to the employee.

PHILHEALTH CONTRIBUTION- the amount contributed by the employer is

equal to the amount deducted from the employee’s salary or wage.

PAG IBIG FUNDS CONTRIBUTION- the amount deducted from the

employer’s salary is equivalent to 3% of basic or P100 whichever is lower.

CLASSIFICATION FOR LABOR

1. Direct Labor- labor identified with particular products which is

consodered feasible to be measured and charge to specific
production order cost sheet.
2. Indirect Labor-
a. Labor identified with particular products
b. Labor expected for the benefit of productionin general
 3. Labor Overhead-
a. Waiting time or idle time
b. Make up pay
c. Overtime premium
d. Shift premium
e. Employer’s payroll tax

CHAPTER 10 PROCESS COSTING

PROCESS COSTING

PROCESS A

MATERIALS
LABOR
PROCESS B
FACTORY OH

PROCESS C FGOODS COFGS

 CHAPTER 11 AVERAGE AND FIFO COSTING

METHODS OF COSTING UNDER PROCESS COSTING

1. FIFO Method

FIFO= Current period costs

Equivalent units of current work done

2. WEIGHTED AVERAGE Method

AVERAGE=Costs in beg.Invty.+current
Equivalent units in beg. Invty + equivalent units of current work
done

CHAPTER 12 JOINT PRODUCTS AND BY PRODUCTS

ACCOUNTING METHODS FOR MAIN PRODUCTS

1. Physical output method/ Average unit cost method

2. Market value at split-off method
3. Net Realizable value method

CHAPTER 13 STANDARD COSTING

USES OF STANDARD COSTS

1. Cost Control
2. Pricing Deductions
3. Performance appraisal
4. Cost awareness
5. Management Objective
 Types of Variances

A. MATERIALS
1. Material Price Variance
2. Material Quantity Variance
B. LABOR
1. Labor Rate Variance
2. Labor Efficiency Variance
C. FACTORY OVERHEAD
1. Two- variance Method
a. Controllable Variance
b. Volume Variance
2. Three –variance Method
a. Spending Variance
b. Idle Capacity Variance
c. Efficiency Variance
3. Four – variance method
a. Spending Variance
b. Variance Efficiency Variance
c. Fixed Efficiency Variance
d. Idle Capacity Variance