INTRODUCTION TO COST Primary Users External Users Internal Users

ACCOUNTING Type of General Specific

COST ACCOUNTING Report Purposes Purposes

Cost accounting is the field of accounting that

Information Historical Historical and
measures, records and reports information
about the cost of goods and services. Prospective

→ Used both in financial accounting and

Primary Both financial
managerial accounting
Financial in and
→ Mostly used in managerial accounting, it’s Nature non-financial
really important when making a business
decision to have an idea on the classification of
cost and what are the considered costs of the Quantitative Quantitative
products and Qualitative

→ For financial accounting purposes, in four

statements it presents, only in two statements Compliance Comply Does not
the cost accounting is needed; the balance with GAAP Comply
sheet and income statement. In the balance
sheet is where the assets, liabilities, equity and Frequency Prepared Prepared more
residual interests of the company are presented. Annually frequently
one of the assets are the inventories; it’s based on
connected to the cost accounting, to find out or
management’s
determine the product costs. In the income
demand
statement, where the expenses are included.
One of those expenses is the cost of goods sold,
which is the cost of the products sold. Requirement Mandatory Optional
→ For managerial accounting purposes, cost
accounting can be the basis for the markup of Scope Whole May include
the product; to know how much you will sell this Company whole
product based on the production cost. company but
→ Another example of use of cost accounting, focuses on
to be able to determine the break even point of a narrower
company. To determine the break even point we scope such as
need to determine the classification of costs the divisions
company incur based on its behavior, and we
apply the concepts of cost accounting. MERCHANDISING VS. MANUFACTURING
FINANCIAL ACCOUNTING VS. Merchandising companies buy goods that
MANAGERIAL ACCOUNTING are already in its saleable condition and
resell them to its customers.
Financial Managerial
Accounting Accounting Manufacturing companies buy raw materials
that are not yet in saleable conditions and
 convert the raw materials into the finished - Once the strategic plan is set, the tactical
products which will be sold to its customers. plan acts as the road map for us to get to the
goal we set. For a shorter run.
COST OF GOOD SOLD -
MERCHANDISING 3. Operations Planning
- For the shortest plan. It concerns the plan for
Inventory, beg. 5,000 the day-to-day operation of a company.
*these plans are based on how long you plan
Purchases 25,000 on implementing it
Control is the process of monitoring the
Goods Available for sale 30,000
company’s operations and determining
whether the objectives identified in the
Inventory, end (10,000) planning process are being accomplished.

Cost of goods sold 20,000

USES OF COST ACCOUNTING DATA
1. Determining Product Costs
2. Planning and Control
*primary uses of cost accounting
DETERMINING PRODUCT COSTS
TWO BASIC PRODUCT - COSTING SYSTEM
When you say product costing system, it will
determine the product costs.
1. Job-order Costing - a system for
allocating costs of groups of unique
products.
→ applicable when the products produced are
not all the same.

Importance of determining product costs: 2. Process Costing - a system applicable to

a continuous process of production of the
● Determining the selling price of
same or similar goods.
product
→ applicable when the products are mass
● Meeting competition
produced.
● Bidding on contracts
MAJOR DIFFERENCES
● Analyzing profitability
Process Costing Job Order Costing
PLANNING AND CONTROL
Planning is the process of establishing Nature of Homogenous Unique jobs are
objectives or goals for the firm and Production units pass worked on during
determining the means by which the firm will through similar a time period
attain them. process
Planning can be Divided into three
components: Cost Costs are Costs are
Accumulati accumulated by accumulated by
1. Strategic Planning on the processing individual job
- Provides the overall direction of a company; department.
setting a goal of a company; for a long run.
2. Tactical Planning
Unit Cost Unit costs are Unit costs are
computed by determined by
dividing the dividing the total
individual costs on the job
departments’ cost sheet by the
costs by the number of units on
equivalent the job.
production.