COST ACCOUNTING - The cost of these materials

- Identify the cost of products/services are direct cost

that is useful in decision making 2. Direct Labor – all labor costs
- Intersection of Management and for specific work performed on
Financial Accounting products

INDUSTRY OF COST ACCOUNTING NOTE: D. Labor + D. Materials = Prime Cost

D. Labor + FOH = Conversion Cost
A. Merchandising Prime C. + Conversion C. = Manufacturing C.

Cost of Goods Sold xx 3. Factory Overhead – a catchall

Beg. Inventory xx for manufacturing costs that
Add: Purchases__ _______ xx________ cannot be classified as DM
Cost of Goods Avail. and DL costs.
For Sale - A varied collection of
Less: End. Inventory xx________ production-related costs
Costs of Good Sold
B. Non-Manufacturing/Period
B. Manufacturing Cost
1. Marketing/Selling Expense –
Raw Materials, Beg. Inventory xx all costs necessary to secure
Add: Purchase, Raw Materials xx___ customer orders
Total Raw Materials xx - Order-getting and order-
Less: RM, Ending Inventory xx___ filling cost
Raw Materials Used xx
Add: Direct Materials xx 2. Administrative/General
Direct Labor xx Expense – all executive,
Factory Overhead xx___ organizational and clerical
Total Manufacturing Cost xx expenses
Add: Work-in-Process, Beg. Inventory xx___
Total Work-in-Process xx II. Costs classified as to variability
Less: WIP, Ending Inventory xx___ A. Fixed Cost
Cost of Good Manufactured xx - Items of cost which remain
Add: Finished Goods, Beginning xx___ constant in total,
Total Goods Available xx irrespective of the volume
Less: Finished Good, Ending xx___ of production
Cost of Goods Sold xx - Not related to activity
within the relevant change
- Cost per unit decreases
CHAPTER 2 COST CONCEPTS AND as volume increases,
CLASSIFICATION VV.
- Are assignable based on
I. Costs classifies as to relation to a difference allocation
product method
A. Manufacturing/Product Cost - TOTAL = CONSTANT
1. Direct Materials – materials - FCPU = CHANGES
that become part of a finished - Prod = CPU
product and can be - Prod = CPU
conveniently and
economically traced to B. Variable Cost
specific product units - Items of cost which vary
directly, in total, in relation
 to the volume of
production EQ 2 ΣY =na+bxΣ
- Cost per unit remains
constant as volume EQ 3 ΣXY =Σxa+bΣ x 2
changes within a Capital vs. Revenue Expenditure
relevant change A. Capital Expenditure
- TOTAL = CHANGES - Intended to benefit more
- VCPU = CONSTANT than one accounting
- Prod = CPU periods and is recorded as
- Prod = CPU an ASSET.

C. Mixed Cost B. Revenue Expenditure

- Items of cost with fixed
and variable components
- It varies with the level of
production, though not in
direct relation to it.
1. Semi-Variable Cost – the fixed
portion of a semi-variable cost
usually represents minimum
fee for making a particular
item or service available
- Benefit is for current period
only and is recorded as an
EXPENSE.
III. Cost classified as to relation to
manufacturing departments
A. Direct Departmental Changes
- Costs that are immediately
charged to the particular
manufacturing department
that incurred cost

2. Step Cost – the fixed portion B. Indirect Departmental Changes

of step costs changes abruptly - Costs that are originally
at various activity levels charged to some other
(indivisible portions) manufacturing
departments or accounts
SCATTER GRAPH but are later transferred

IV. Costs classified to their nature

HIGH-LOW METHOD A. Common Cost
VCPU = Yh - Yl - Cost of facilities or
Xh – Xl services employed in two
or more accounting
H L periods.
Cost B. Joint Cost
V-H - Cost of materials, labor
(VCPU x Xh) and overhead incurred in
the manufacture of two or
Cost more products at the same
V-L time
(VCPU x Xl)___________ - Indivisible and not
Fixed Cost specifically identifiable

VC + FC = TC Costs for Planning, Control and Analytical

Process
A. Standard Cost
METHOD OF LEAST SQUARE - Predetermined costs for
DM, DL and FOH.
EQ 1 Y =a+bx
 - It is a budget for the
production of one unit of
product / service.
- Cost chosen by the serve
as the benchmark in the
budgetary control system

B. Opportunity Cost
- The benefit given up when
one alternative is chosen
over another

C. Differential Cost
- Cost that is present under
one alternative but is
absent in whole or in part
under another alternative
- Incremental INCREASE
- Decremental DECREASE
- Marginal Revenue – the
revenue can be obtained
from selling one more unit
- Marginal Cost – the cost
involved in producing one
more unit

D. Relevant Cost
- A future cost that change
across the alternatives
- COGS

E. Out-of-Pocket Cost
- Cost that requires the
payment of money as a
result of their incurrence

F. Sunk Cost
- Cost for which an outlay
has already been made
and it cannot be changed
by present or future
decision

Controllable Cost – if that level of

management has power to authorize the cost