Experience Points- ACCTG 4225

VID 1- COST CONCEPTS & CLASSIFICATION INTRO

Q: What does DM+DL called? / What does DL+FOH called?

Direct Materials (DM) + Direct Labor Costs (DL)= Prime Cost; it is the direct costs of production.

Direct Labor Costs (DL) + Factory Overhead (FOH)= Conversion Cost; it includes all manufacturing costs
excluding the direct material costs.

VID 2- COST CONCEPTS & CLASSIFICATIONS: TERMINOLOGY

Q: What is Cost Assignment Technique? / Define Cost Control, Cost Reduction & Cost Management

 Cost Assignment (Technique) or also known as Cost Allocation pertains to the method by which
expenses are assigned/ allocated to the activities or objects that resulted in the costs being
incurred. This technique is commonly used in Activity Based Costing (ABC). Most importantly,
cost assignment techniques such as Direct Method, Step Method, and Algebraic Method are
used by accounting students and CPAs to adequately allocate costs to cost objects.

 Cost Control can simply be pictured as the preventive function within the existing operating
methods for which standards have been developed. It focuses on decreasing the total costs of
production to increase profit. This is a short-term plan and process that will be completed to
achieve a specified target.

 Cost Reduction, by contrast, is the corrective function that focuses on decreasing the per-unit
cost of a product. It involves long term goals and proves to eliminate wasteful expenses without
sacrificing the quality.

 Cost Management is one of the main focuses of Managerial Accounting. It aids a company's
forecasting of future expenses to meet its planned objectives. Also, it strives to improve the
company’s profitability by managing, controlling and eliminating expenses. The data and reports
it provides can be effectively used by managers to make decisions that will lead to long term
growth.

VID 3- SAMPLE 1 COST

Q: What is y= a +bx in mathematics?

Good day Ma’am,

1. In mathematics, the equation ( y= a +bx) refers to the Linear Regression that shows the
relationship between two variables by fitting a linear equation to observed data. In the said
equation:

y= the dependent variable;

Experience Points- ACCTG 4225

a= intercept (the value of y when x = 0);

b = slope of the line;

x= the independent variable or explanatory variable.

VID 4- SAMPLE 2 COST

Q: What is the Cost function of Period Cost?

2. The cost function of period cost at 12,000 units is: y= $48,000 + $3(x)
 Period Cost= Fixed Admin/ Selling Expenses (units produced) +Variable Admin/ Selling
Expenses(unit sold)

Q: Responsibility Accounting Define the ff:

1. Economic Value Added (EVA) is a measurement that was created to better align managerial
interests with the interests of common stockholders. EVA is a calculation that indicates
profit produced above the cost of capital. It applies the target rate of return to the market
value of the capital invested rather that the asset book values that are used to calculate
Residual Income (RI).

The formula for calculating EVA is as follows:

EVA= After tax profits- (Cost of Capital % x Market Value of Invested Capital)

2. Residual Income (RI) and EVA (Economic Value Added) are two methods for determining
how much funds an investment will generate more than the business's cost of capital. 
Mainly, both Residual Income and EVA are calculated using the same principle; the
main difference is how they are calculated. While operating profit is used in the calculation
of residual income, net operating profit after tax is used in the calculation of EVA. Also, in
effectiveness perspective, Residual Income is more effective compared to EVA due to tax
adjustments.

3. Partial productivity is the ratio of output to partial input. It calculates each input's
productivity. It determines each factor’s involvement and how it contributes to the output
production and generation. It is a useful diagnostic tool for pinpointing areas where
productivity might be improved. Nevertheless, partial productivity might be misleading if
done or used alone for it does not explain the overall cost; focusing on improvement for
certain area does equate for good results.
Experience Points- ACCTG 4225

In Cost Accounting, Strategic Cost Management, Managerial Accounting and Strategic Business Analysis,
give each one of the subject the concept/ principle made an impact/ remembered:

Hello Ma’am!

The concepts/ principles in each of the subjects which I remembered most and made an impact are as
follows:

a. Cost Accounting- “Cost- Volume- Profit Analysis (CVP)”

- As profit cannot be achieved until the Break-Even Point (BEP) is reached, the starting point
of CVP analysis is the BEP; thereby coexist a relationship discussion of the two. CVP analysis
is used to calculate the sales volume necessary to achieve a target profit. Management use
this to effectively plan and control the relationships among revenues, cost, volume changes,
taxes, and profit. Utterly, it is one of the simplest yet notable analytical tools in
Management accounting as it examines possible impacts in strategic decisions.

b. Strategic Cost Management- “Balanced Scorecard (BSC)”

- BSC is a framework that depicts an organization’s strategy into clear and objective
performance measure (leading and lagging) that has four perspectives: (1) learning and
growth, (2) internal business, (3) customer value, and (4) financial performance. BSCs allow
businesses to combine and generate data into a single report, give information on service
and quality and boosts efficiency.

c. Managerial Accounting- “Capital Budgeting”

- -Capital Budgeting involves comparing and evaluating alternative projects. It ranks
alternative future investments to effectively and efficiently allocate the capital. There are
number of methods used for capital budgeting systems such as; Payback Period, Discounting
of Future Cash Flows, Net Present Value, Profitability Index, and Internal Rate of Return.
Vitally, Capital Budgeting actualizes a quantitative view of each proposed fixed-asset
investment to support and make rational judgments and decisions.

d. Strategic Business Analysis- “Benchmarking”

- Benchmarking is one of the most widely used strategic tool that is used to compare the
performance of the companies processes and products with the best performances of other
companies inside and outside the industry. It seeks and anticipates for industry best
practices that lead to superior performance. It is indeed a valuable tool for management
consultants to determine whom is ahead of competition, identify areas for improvement,
boost the quality of the firms product/ services, and comprehensively increase the firm’s
competitive value.
Experience Points- ACCTG 4225

The goal of cost leadership is to keep expenses as low as possible to give customers with reduced pricing
and thereby increase their savings in incurring additional costs. Also, it is about establishing scale
economies and using them to produce high volume of products at a low price.

On the other hand, creating a one-of-a-kind service or product offering, through good branding is known
as product differentiation. This strategy tries to create a unique product that has a strong link to a
company's brand.

Vitally, it is dependent on the company's focus, size, resources, and environment, since the two
strategies both have advantages and drawbacks can be used to develop a competitive strategy.

a. Financial; Cash Flows & Sales/ Revenue Growth

b. Customer;