Chapter#1: Introduction to Cost  It is applicable to the production of costumer specified

products such as the manufacture of special machines.

Accounting  Each job becomes a cost center for which costs are
Accounting accumulated.
◦ Its objective is to provide financial information about an  A subsidiary record (Job Cost Sheet) is needed to keep track
economic entity to different types of user. of all unfinished jobs (work in process) and finished jobs
(finished goods)
◦ Financial accounting = External Users
◦ Managerial Accounting = Internal Users
2. Process Costing
 A system applicable to a continuous process of production of
◦ Cost Accounting = Internal & External User
the same similar goods.
 There is no need to determine the cost of different group of
A. Comparison of Financial, Managerial, & Cost products because the product is uniform, each processing
Accounting department becomes a cost center.
1. Financial Accounting E. Characteristics of Job Order Costing
 Use of accounting information for reporting to external users.
 Primarily concerned with financial statement for external
users by those who supply funds to the entity.
 Reports prepared focus on the enterprise as a whole.
2. Managerial Accounting
 Focuses on the needs of parties within the organization
(internal users) rather than interested parties outside the
organization (external users).
 Its information commonly addresses individual or divisional
concerns rather than those of the enterprise as a whole.
3. Cost Accounting
 Expanded phase of general or financial accounting which
informs management promptly/ on time with the cost of
rendering a particular service, buying and selling, and
producing product.
 Field of accounting that measures, records, and reports
information about cost

B. Merchandising vs. Manufacturing Operation

1. Merchandising Operation
 Normally buys a product that is ready for resale when it is
received.
 Nothing needs to be clone to the product to make it salable
except possibly to prepare a special package or display.
2. Manufacturing Operation
 Involves the conversion of raw materials into finished goods
through the application of labor and the incurrence of various
factory expenses.

C. Uses of Accounting Data

1. Provides a basis for determining product cost.
a) Determining the selling price of a product
b) Meeting competition
c) Bidding on contracts
d) Analyzing possibility
2. Aids management in planning operations
 Long and short term plans
3. Aids management in controlling operations
 Setting boundaries

D. Two Basic Product-Costing System

1. Job Order Costing
 A system for allocating cost to groups of unique products.