COST ACCOUNTING AND

CONTROL
INTRODUCTION TO COST ACCOUNTING

Alexsander C. Ong, CPA

Instructor
Polytechnic University of the Philippines – Santa Rosa Campus
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• Define what is cost accounting
• Explain the relationship of financial, cost, and management
accounting
• Distinguish between merchandising and manufacturing operations

Ong. A.
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING

COST ACCOUNTING
❖ It is a discipline that focuses on techniques or method for
determining the cost of a project, process or services for the purpose
of planning and controlling activities, improving quality and
efficiency, and for making decisions.

Ong. A.
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING
RELATIONSHIP OF COST ACCOUNTING,
FINANCIAL ACOUNTING AND MANAGEMENT
ACCOUNTING

Ong. A.
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING
MERCHANDISING VS. MANUFACTURING
OPERATIONS Merchandise companies buy products that
are ready for resale to customers.

Merchandise bought are debited to

Purchases (under Periodic Method) or
Merchandise Inventory (under Perpetual
Method). The sum of the Beginning
Inventory and Net Purchases is called the
Cost of Goods Available for Sale.

At the end of the accounting period, the

cost of any unsold items are reported as
Ending Inventory in the Balance Sheet.
While the cost of sold items are expensed
and reported as the Cost of Goods Sold in
the Income Statement. Ong. A.
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING
MERCHANDISING VS. MANUFACTURING
OPERATIONS Manufacturing companies buy raw materials and convert
it to finished products. These raw materials are
converted through labor and by incurring factory
overhead costs (indirect manufacturing costs).

Materials bought are stored until they are ready for use
in the production. When the production department
requests for materials, the materials are then pulled out
from the storage and put in production area for
processing.

The cost of direct materials used in the production along

with the cost of direct labor and factory overhead applied
are called the Total Manufacturing Cost. The cost of
these three elements are debited to the Work in Process
Inventory. The cost of any unused materials is reported
as Materials Inventory in the Balance Sheet.
Ong. A.
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING
MERCHANDISING VS. MANUFACTURING
OPERATIONS At the end of the period, items that are unfinished
or are still in process are reported under the Work
in Process Inventory in the Balance Sheet. The
products that were finished processing during the
period are then transferred to the Finished Goods
storage. The cost of the finished products during the
period is called the Cost of Goods Manufactured and
are debited to the Finished Goods Inventory.

At the end of the period, the cost of unsold finished

goods is left under the Finished Goods Inventory
account. The cost of the sold items is expensed and
reported under the Cost of Goods Sold in the
Income Statement.

Ong. A.
COST ACCOUNTING AND CONTROL
INTRODUCTION TO COST ACCOUNTING

REFERENCES
De Leon Jr., Guillermo M. & De Leon, Norma D. Cost Accounting (2012
Edition). GIC Enterprises & Co., Inc.

Ong. A.