v UNIVERSITY OF SANTO TOMAS

College of Commerce and Business Administration

Acct 4 – Cost Accounting

INTRODUCTION TO COST ACCOUNTING

1. Relationship of Cost Accounting to Financial and Managerial

Accounting
a. Definition
i. Cost Accounting – branch of accounting that
provides detailed cost data that management needs
to control current operations and plan for the future.

ii. Management/Managerial Accounting – branch of

accounting that focuses on both historical and
estimated data that management needs to conduct
on-going operations and do long range planning

iii. Financial Accounting – focuses on gathering

historical financial information to be used in
preparing financial statements used for statutory
requirements.

b. Relationship analysis

i. Cost Acctg and Financial Acctg

- Calculating product costs – CGS, FGs,
WIP, RMs Inventory

ii. Cost Acctg and Managerial Acctg

- Budgeting
- Financial Forecasts
- Finacial Decisions – make or buy, keep
or sell, etc.
 - Non Financial information – rate of
defect, rate of product return,
percentage of on time deliveries, etc.

2. The Role of Cost Accounting in Business

- Determine the correct product cost

- Determine the desired selling price
- Create ways on how to lessen
production costs
i. Proper Inventory Management
ii. Use of more cost efficient
alternatives to labor and materials
3. Cost Concepts
a. Elements of Production/Elements of Manufacturing Costs
i. Direct Materials
ii. Direct Labor
iii. FOH

b. Classification of Costs
i. Relation to Production
1. Prime Costs
2. Conversion Costs
ii. Behavior
1. Variable
2. Fixed

4. Cost flow in a service, merchandising and manufacturing types

of business

a. Inventory
i. Service
ii. Merchandising
iii. Manufacturing

b. Cost flow formulas

i. Service
 ii. Merchandising
iii. Manufacturing
RM beginning
RM purch
RM available for prod
(RM ending)
RM, used
DL
FOH
TMC
WIP beginning
Total Goods put into process
(WIP) ending
Cost of Goods Manufactured
FG Begininng
COGAS
FG Ending
CGS

Exercises 1-2, 1-3 (determine the amount of Cost of goods manufactured),

1-6 (CGM and TMC) 1-7 (CGM)
Quiz 2