INPUT MEASURING BASIS (SYSTEMS OF - direct labor and factory overhead costs are

ACCUMULATING COST) charged as an expense

- total sales less the cost of direct materials is
3 System/Measurement of Basis Accum. Cost known as throughput contribution
- does not provide proper matching of cost
a. Historical Costing and revenue
- Product costs are determined as they occur - acceptable only in internal
simultaneously with the manufacturing
operation but the total of product cost is b. Direct (Variable) Costing
only known as the operation has been - treats all variable costs as part of the
completed inventory and all fixed costs us. Costs
- collects the actual amount of the product - not provide proper matching costs and
costs revenue
- use by internal
DM DL FOH Divided into two parts
1. Variable costs
INVENTORY 2. Fix costs

b. Standard Costing (Predetermined)

- product costs are determined in advance
- the difference between product cost and
predetermined costs are charged to
variance account

DM DL FOH c. Full Absorption Costing

- all product words are capitalized
INVENTORY - provides proper matching of cost and
revenue
c. Normal Costing - use by companies for external reporting
- combination of apple costing and standard purposes
costing were in direct materials and direct
labor are accommodated using actual
costing and factory overhead is
accumulated using standard costing
- the difference between the applied factory
overhead costs and the overhead cost is
called variance
d. Activity Based Costing
DM DL FOH - a sales factory overhead cost to products in
a more logical manner than the traditional
INVENTORY way of simply allocating costs on the basis
of direct labor hours or machine parts
Inventory Valuation Methods - Provides more accurate product course
important for reporting purposes because they
control the manner in which net income is
determined

a. Throughput Costing
- only direct materials are recorded
Computation of COGS c. Backflush Costing
- This method is a simplified cost
Throughput Costing accumulation method
Beg. Balance - adapts just in time inventory system
Add: direct materials - it delays the costing process until the
Goods Available for Sale production of goods is actually produced or
Less: Ending Inventory completed
Cost of Goods Sold - objective of this system is to zero out or
minimize inventory on hand
Variable costing d. Hybrid Costing
Beg. Balance - combination of job order and process
Add: direct materials costing method
Direct labor - direct materials are accounted using job
Variable FOH order costing while conversion costs (labor
Goods Available for Sale and factory overhead) accounted using
Less: Ending Inventory process costing
Cost of Goods Sold
Cost Flow assumption
Absorption costing a. Specific Identification
Beg. Balance - doctor cause of the item sold is determined
Add: direct materials and charge as cost of goods sold
Direct labor - the cost of the inventory is determined by
Variable FOH simply multiplying the inventory units by
Fixed FOH their corresponding unit costs
Goods Available for Sale b. First in; First out (FIFO)
Less: Ending Inventory - the goods first purchase is first sold
Cost of Goods Sold c. Last in; Last out (LIFO)
- goods last purchase is first sold
Cost Accumulation methods d. Weighted Average
(Procedures) - beginning inventory units lose their
separate identity because they are
a. Job order costing combined with the newly purchased
- costing keeps the cost of different jobs inventories
orders contracts separate during their
manufacture
- applicable to companies producing Recording interval capability
heterogeneous products 1. Perpetual - requires maintenance of
ex. construction projects, repair shop, shipbuilders’ records call stock cards. it updates the
government contracts, job printing, textbooks inventory accounts after each purchase or
sale of the company
b. Process Costing 2. Periodic - the physical counting of
- when the units are not separately inventories on hand. generally used by
distinguishable from one another during the retailers whose inventory items have small
manufacturing process peso investment
- accumulated by departments operation or
processes Functions of accounting
- applicable to companies producing large 1. Bookkeeping - involves recording all of
quantities of homogeneous products costs from their incurrence
 2. Cost Control - exercise through utilization of
cost information for exercising control such Manufacturing Cost
as cost collection cost analysis cost 1. direct materials
presentation and cost interpretation 2. direct labor
3. Cost analysis - deals with the process of 3. factory overhead
finding out the causal factors of why after
costs differ from the budgeted costs Direct materials
4. Cost Comparison - deals with the - raw materials that became an integral part
comparison between costs from alternative of the finished goods
courses of actions such as use the - should be distinguished from indirect
technology for the production cost of material costs
producing different products and activities
5. Cost Planning - involves the accounting of Direct labor
all costs in the records in a proper manner - cost of Labor paid to workers who are
6. Cost Finding - the measurement or directly involved in the production of goods
estimation of different products or services
departments or other segments of the example: salary of carpenters, mason, machine
company's operation operator

Manufacturing company Indirect labor - workers who do not work directly

buys raw materials convert them into finished on the products being manufactured
products and then sell the products to customer
example: salary of the construction foreman,
3 inventory accounts purchasing staff, materials handling staff, quality
1. raw materials inventory control staff
- represents item that the company has
purchased from other companies to be Journal entry for labor cost charge to production
used in manufacturing a product Work in process
can be classified as: Factory overhead
Direct Material - can be physically and grace to be Payroll
finished products
Indirect Material - not conveniently traced to the Formula:
finished product beginning balance WIP
(Journal Entry )Raw materials use in product total manufacturing costs (dm,dl,foh)
process Less: Cost of goods manufactured
work in process Ending inventory
factory overhead
raw materials inventory Factory Overhead
- includes indirect materials, indirect labor
Beg. Balance Raw Materials factory utilities expense, depreciation of
Purchases factory properties, property taxes and
Less: Used Materials insurance factory
Unused materials Formula:
Beginning balance
2. Work In Process Inventory Cost of good manufactured
- represents all manufacturing costs (raw Less: Ending balance
materials use directly boy and factory Cost of goods sold
overhead)
- partially completed

COST CLASSIFICATION AND ESTIMATION
Classification Of Cost
- process of arranging the components of
course in logical groups having regard to
their nature and purposes
a. As To Element Or Nature
1. Material
- includes cost of procurement, freight in
taxes and duties insurance directly
attributable to the acquisition of materials
- rebates, trade discounts refunds return VAT
or deducted to determine the cost of the
material
2. Labor
- includes wages salaries allowance
production incentives or bonus overtime
pay holiday pay and fringe benefits
3. Expenses
- costs incurred other than material and labor
costs
- may be classified into direct and indirect
expenses
Direct Expenses
- expenses which can be directly allocated to
a particular product cost center or unit of
service
- also known as chargeable expenses
examples: maintenance cost of equipment cost of
spatial layout designing or drawing cause of a
particular product or service cost of hiring of
equipment for a particular production cost of
defective work for a particular job or contract
Indirect Expenses
- expenses which cannot be conveniently and
directly allocated to a particular product
cost center or unit of service
examples: lighting water rent insurance office
and administrative expenses selling and
distribution expenses
Overheads
- total of indirect material costs indirect labor
costs and indirect expenses
- costs which cannot be associated directly
with its specific products, and it is allocated
or operation to products and services on
some rational basis
Three Types Of Overheads
1. Factory Overheads - indirect materials
indirect labor and factories are prices
depreciation expense of the factory
property plant and equipment factory
insurance factory rent
2. Administrative Overheads - incurred in the
administrative office such as office supplies
early of office staff directors fee office
insurance office utilities office rent
3. Selling And Distribution Overheads - costs
incurred in connection with the selling and
distribution of goods and services such as
sales staff salaries delivery men salaries
Commission advertising parking storage
transportation
b. As Relation To Product
1. Product Costs
- cause of direct materials direct labor and
factory overhead used in the manufacture
of products
- treated as assets until the goods in which
they are assigned are sold and at the time
they are considered as an expense
- maybe fix or variable costs or mixed costs
I. Direct cost object
a. Direct Material - easily traceable or
identified
b. direct labor - workers who are directly
involved in the production of goods and
services
II. Indirect Cost Objects - cannot be
conveniently traced assigned to the
product or services
c. Factory overhead - indirect factory related
costs incurred in the manufacture of the
product
Indirect Materials - consists of grease oil lubricants
small tools brushes for sweeping factory supplies
Indirect Labor - consists of salary of factory
manager for men supervisor’s factory guards
factory clerks timekeepers
Cost Object- often a product oil department for Conversion Costs (DL + FOH = Conversion)
which costs are accumulated or measured: it can - sum of direct labor costs and factory
also be a job process machine uh department overhead costs
- costs needed to be incurred to convert the
raw materials into finished products
Basis Direct Costs Indirect Costs
Meaning Cost that is across that c. Ask To Behavior
easily cannot be 1. Variable Costs
attributable/ easily assigned - cost that very directly proportional to the
traceable to A or traced to a change in the level of activity of production
cause object particular cost - increases or decreases according to the
object volume of production or activity level
Benefits single product multiple 2. Fixed Cost
or project products or - costs that do not change regardless of the
projects change in the level of activity
Aggregate total of all total of all
direct costs indirect costs Two Types Of Fixed Costs
are known as is called as 1. Committed Fixed Costs
prime costs factory Two Characteristics
(direct overheads a. it is long term in nature
materials and b. it can be significantly reduced even for a
direct labor short period of time without seriously
Traceable yes No impairing the profitability or long run goals
of the company
2. Period Costs (examples the preservation property taxes sales of
- Cost not associated with production top management)
- treated as expenses when they are incurred 2. Discretionary Fixed Costs
- also known as commercial costs - costs that may be altered reduced or
a. Selling Or Marketing Costs - costs incurred eliminated in the short term by current
necessary to secure the customer orders management decisions and it has no
and make the finished products shipped to particular relationship with the production
the customer output
example: delivery expenses depreciation expenses 3 Characteristics
of delivery van advertising and promotion a. it is a short term in nature
b. it can be cut for a short period of time with
b. Administrative/ General Costs minimal damage to the long-term goal of
- includes all executives and clerical expenses the company
associated with general administration of c. can be that just that from year to year or
the company even perhaps during the course of the year
examples: expenses in offices if necessary
examples: research and development goals
Prime Cost (DM + DL =Prime cost) advertising and sales promotion cost donations,
- sum of direct material costs and direct labor professional fees, management development
costs programs
- primary cost needed to manufacture the
products 3. Mix (Semi Variable) Costs
- Close the tab of behavior of fixed and
variable costs
 - thanks to either increase at an increasing
(cost of electricity) rate or increase at a
decreasing rate (learning Curve)
examples: utilities expense such as electricity water
telephone postpaid cell phone plans
d. As In Relation To Manufacturing
Departments
1. Direct Departmental Charge - charge two
particular manufacturing departments that
incurred the cost since the costs can be
conveniently identified or associated
2. Indirect Departmental Charge - costs that
are originally charged to some other
manufacturing departments or accounts
but are later allocated or transferred to
other departments that indirectly benefited
from said costs
e. As In Nature As Common Or Joint Costs
1. Common Cost
- cost incurred the benefit of which is
enjoyed by more than one cost center
within an organization
examples: electrical expenses allocated to different
departments who use the electricity
2. Joint Cost
- costs of two or more products that are
produced simultaneously by a single
process and are not identifiable as distinct
products until the split of point is rich
- anchored up to the point of separation
examples cost of chicken is divided into different
products (chicken breast drumsticks liver geezers
chicken feet)
f. . As To Accounting.
1. Capital Expenditures
- cost incurred to acquire or improve assets that
are to be used for more than one year
- expenditure of the company made in order to
expand the production
treated and recorded as asset
examples: acquisition of property plant and
equipment, machinery vehicles lot improvements
building improvements
2. Revenue Expenditures
- costs that are directly charged as an
expense because it benefits only the current
period
- Being match with revenues of the current
period
Examples: rent expense utility expense salary
repair expense
g. By Normality
1. Normal Costs - regular calls anchored in the
normal conditions during the normal
routine day-to-day operations of the
organization : sum of all apple direct
material direct labor and overhead costs
2. Abnormal Course - arises because of any
abnormal unusual unexpected or irregular
activity or events which are not part of
routine business operations
examples cost arising from floods riots
accidents earthquakes fire shut down of
machinery
h. By Time
1. historical cost - original cost at the time
of transaction
2. predetermined costs - plan calls for a
unit of product or services rendered;
computed in advance or prior to
production
i. For Planning Control And Analytical
Processes
1. Standard Costs - predetermined cost for
direct materials labor and factory
overhead
2. Opportunity Costs - benefit giving up
when one alternative is chosen over
another; not recorded in the books of
accounts
3. Differential Costs - percent under one
alternative but is absent in whole or in
part under another alternative
it may be
a. Incremental Costs - results in an increase in
total cost
b. Decremental Costs - results in a decrease in
total cost
4. Relevant Costs - future costs that differ
across the alternatives; said to be
 relevant as it helps the manager in Variabl increases us Constant
taking a right decision in furtherance of e production
the company's objectives; affects the increases
decision making of the management (directly
5. Out Of Pocket Costs - calls or expenses proportional)
that require the payment of money as a Mixed increase is decreases less
result of their incurrence; also called us (Semi less proportionately
explicit costs Variabl proportionat (vs unit fix
6. Imputed Costs - doesn't involve an e cost) ely (vs total costs) as
upper cash outlay; only use for the variable cost) production
purpose of decision making and as production increases
performance evaluation; also known as increases
implicit cost or hypothetical cost
7. Sunk Cost - cause for which an outlay Cost Behavior Assumption and Limitations
has already been made and it cannot be 1. Relevant Range Assumption
changed by present or future decisions - refers to the range of activity within which
8. Controllable Costs - cost is considered the course behavior pattern is valid
to be controllable costs at a particular - any level of activity outside this range may
level of management if the manager has show a different cost behavior pattern
the power to influence or authorize the 2. Time Assumption
incurrence of such costs - cause behavior patterns identified are true
9. Uncontrollable Costs - cannot be and only over a specified period of time
influenced by the action of the person in - the horse may show a different cause
whom control of the center is vested behavior pattern beyond this
10. Avoidable Costs - course which will be 3. Linearity Assumption
eliminated or not incurred if a segment - cost assumed to manifest a linear
or department which they are related is relationship over relevant page despite its
discontinued; also known as escapable tendency to show otherwise over the long
cost run
11. Shut Down Cost - incurred by the Segregation Of Fixed and Viable Elements of
company if the operation is terminated Mixed Costs
or shut down and they will disappear if 1. High Low Method
the operations are continued - quick and easy method of determining the
12. Marginal Costs - or increase or decrease variable cost per unit and the total amount
in a total cost of a production run for of fixed costs that are part of mixed cost
making one additional unit of the item; 4 steps to be followed using high-low methods
also defined as the amount at any given 1. identify the high and low activity levels from
volume of output by which aggregate the data set
costs are changed if the volume of 2. calculate the variable cost per unit
output is increased or decreased by one
unit

Cost behavior 3. calculate the total fixed cost

Costs Total Per Unit
amount Amount
Fixed constant decrease as
production 4. state the results in equation form y=a+bx
increases(invers
ely proportional 2. Scattergraph Method
 - a graphical technique of separating fix and uses all observation of it requires relatively
variable components of mixed costs cost data strict assumptions for
- considers all data points not only the the results to be valid
highest and lowest activity levels relatively easy to use if an outlier is present
Advantage Disadvantage with computer and this can adversely
use all observations of The fitting of the line to calculators affect the result
cost data the grab is subjective
relatively easy to difficult to do if there steps to be followed
understand and apply are several a. compute the mean of the X values the
independent variables mean of the Y values the mean of XY values
cost driver to be used and the mean of X squared values
it provides more unable to give the b. supply the values in the formula and
accurate results than exact extent of compute the value of variable cost per unit
hi-low method correlation
outliers or values of
extreme items are
easily seen and do not
affect this method c. compute the value of Y intercept (total fixed
costs)
steps to be followed d. state the results in equation form y=a+bx
1. plot the data points for each period on a
graph 4. account analysis method
2. visually fit a line to the data points - each about is classified as either fixed
3. estimate the total fixed cost variable or mix based on experience and
4. calculate the variable cost per unit judgment of accounting and other qualified
5. state the results in equation form y=a+bx personnel in the organization
Advantage This Advantage
1. provides 2. subjective,
3. Least Square Regression Method detailed expert judgmental
- A statistical technique that investigates the analysis of the approach
association between dependent and cost’s behavior - the different
independent variables in each account analyst may
- uses all the data points and it provides more derive different
accurate results than scattergram method is the mix of
cost behavior
if there is only one dependent variable and one 3. it is more labor
independent variable the analysis is known as intensive and
simple regression time consuming
than regression
if that analysis involves one dependent variable analysis
and multiple independent variables it is known as 4. the cause of
multiple regression death the
collection may
surpass benefit

Advantage Disadvantage 5. Other Cost Estimation Methods

 a. Engineering Method
- study of physical relation between import
and each unit of output is done
- uses cost and activity projections instead of
historical costs
Advantage Disadvantage
it can be used to it is quite expensive to
estimate costs of use because each
totally new activities activity is using expert
because it does not engineers that are
require data from prior costly
activities in the
organization
it can detail each step Are often based on
required to perform an optimal condition (no
operation error machine
breakdown)

it is not useful when

the physical
relationship between
imports and output is
indirect
it permits a
comparison of other
centers in which similar
operations are
performed and enables
the company to review
its productivity and
identify strengths and
weaknesses. it helps
manager to identify
nonvalue added
activities

b. Conference Method
- classified based on opinions from various
company departments such as purchasing
process engineering manufacturing
employee relation and so on
Advantage Disadvantage
its credibility is gained its accuracy (cost
through the pooling of estimate) is dependent
expert knowledge on objectivity care of
the people providing
the information