CHAPTER ONE

INTRODUCTION TO COST ACCOUNTING

Learning Objectives

Be able to
 Distinguish between financial, managerial
and cost accounting
 Distinguish between merchandising and

manufacturing operations
 Identify the uses of cost accounting data

 Distinguish between job order costing and

process costing
 Major Areas of Accounting

1. FINANCIAL ACCOUNTING is the use of

accounting information for reporting to
EXTERNAL parties, including investors and
creditors.
2. MANAGERIAL ACCOUNTING focuses on the
needs of parties within the organization, rather
than the interested parties outside the
organizations.
Relationship of Financial, Managerial and
Cost Accounting

Cost Managerial
Financial
Accounting Accounting
Accounting
What is the difference between
Merchandising and
Manufacturing Operations?
Uses of Cost Accounting Data

1. Determining product costs

◼ Determining the selling price of a product
◼ Meeting competition
◼ Bidding on contracts
◼ Analyzing profitability

2. Planning and Control

 Two basic product costing systems

1. Job Order Costing. A system for allocating

costs to groups of unique product.
2. Process costing. A system applicable to a
continuous process of production.
Comparison of Process and Job order Costing
PROCESS COSTING JOB ORDER COSTING
1. Homogeneous units pass 1. Unique jobs are worked on
through a series of similar during a time period
processes
2. Costs are accumulated by 2. Costs are accumulated by
processing department individual job

3. Unit costs are computed by 3. Unit costs are determined by

dividing the individual dividing the total costs on the job
departments’ cost by the cost sheet the number of units on
equivalent production the job
4. The cost of production report 4. The job cost sheet provides
provides the detail for the Work the detail for the Work in
in Process account for each Process account
department
CHAPTER TWO
COSTS-CONCEPTS AND CLASSIFICATIONS
 CLASSIFICATIONS OF COSTS

1. As to relation to a product
a. Manufacturing costs/ product costs
1. Direct Materials
2. Direct Labor
3. Factory Overhead
b. Non-Manufacturing costs/ period costs
1. Selling/ Marketing Expenses
2. Administrative/ General Expenses
 CLASSIFICATIONS OF COSTS
2. As to variability
a. Variable costs
b. Fixed Costs
c. Mixed Costs
3. As to relation to manufacturing departments
a. Direct Costs
b. Indirect Costs
4. As to their nature
a. Common Costs
b. Joint Costs
 CLASSIFICATIONS OF COSTS
5. As to relation to an accounting period
a. Capital Expenditures
b. Revenue Expenditures
6. Costs for planning, control and analytical processes
a. Standard cost
b. Opportunity cost
c. Differential cost
d. Relevant cost
e. Out-of pocket cost
f. Sunk Cost
g. Controllable cost