FULL COST

ACCOUNTING
 COST
is a cash or cash-equivalent
value sacrificed for goods
and services that is expected
to bring a current or future
benefit to the organization
OPPORTUNITY
COST
is the benefit given up
or sacrificed when one
alternative is chosen
over another.
 ACCURACY OF ASSIGNMENTS
Cost can be assigned in a number of ways, some
methods are more accurate, but time consuming
while others are quite simple but not as precise.
The accuracy of some underlying ”real” costs is not
evaluated on the basis of knowledge. It is instead a
relative concept and is related to the rationality
and logic of the cost allocation methods. The aims
is that the cost of resources consumed by an object
is measured and allocated as much as possible.
 PRODUCT AND SERVICE COST
PRODUCT(MANUFACTURING) COSTS- are those cost both direct and indirect, of
producing a product in a manufacturing firm.

METAL, GLASS, FABRIC, PLASTIC

DIRECT MATERIALS

Wages for the word related directly to the

DIRECT LABOR manufacturing of product

Manufacturing overhead can be termed as the

MANUFACTURING costs/expenses related to all manufacturing activities that
OVERHEAD occur during the course of production other than direct
materials and direct labor.
 SERVICES
-are tasks or activities carried on by a customer using
products or facilities of an organization. Services are also
produced using materials, labor and capital inputs.
Insurance covarage, medical care, dental care, funeral
care, and accounting are examples of where the customer
uses an organization’s products or facilities.
PRODUCT COSTS AND EXTERNAL FINANCIAL
REPORTING SERVICES
-costs are subdivided into two major functional categories:
production and non-production. The cost associated with
manufacture of goods or the provision of services are
production costs. Cost associated with the design,
development, marketing, distribution, client service and
general administration are those related to non-
producing costs.
-Nonproduction costs are often divided into two general
categories: selling costs, which are the costs of marketing,
distribution, and customer service; and administrative
costs, which are the costs of designing , developing, and
general administration.
For Tangible goods, production and nonproduction costs
are often referred to as manufacturing costs and
nonmanufacturing costs, respectively. Production cost can
be further classified as direct materials, direct labor, and
overhead. Only these three cost elements can be assigned
to products for external financial reporting.
 DIRECT AND INDIRECT MANUFACTURING COSTS
DIRECT MATERIALS- Materials that can be directly traced
to thr product. Example, fruit jam manufacturing fruits,
jars, label.
DIRECT LABOR- Labor that can be directly traced to the
product. Example, factory workers.
MANUFACTORING OVERHEAD- All product cost ither than
direct labor and direct materials. They cannot be traced to
the product. Example, supervision, depreciation, utilities,
taxes.
INDIRECT COST- Costs that cannot reasonably be directly
traced to the product.
Total Product Cost
Total Product Cost-Direct Materials+Direct
Labor+Manufacturing Overhead
Unit Product Cost
Unit Product Cost =Total Product Cost+Number of Units
Produced
 PRIME AND CONVERSION COST

Direct materials, direct labor and manufacturing

overhead are sometimes grouped into prime and
conversion cost . Prime cost is the sum of direct
materials cost and direct labor cost. Conversion cost is
the sum of direct labor cost and overhead cost. For a
manufacturing firm, conversion cost can be interpreted
as the cost of converting raw materials into a final
product.
To improve your understanding of these definitions, consider
the following scenario: A company has reported the following
costs and expenses for the most recent month.
Direct Materials.....................P69.000
.
Direct Labor...........................P35,000
Manufacturing overhead................P14,000
Selling expenses.............P29,000
Administrative expenses..............P50,000
These costs and expenses can be categorized in a number of
ways, including product costs, period costs, conversion costs,
and prime costs.
COST BEHAVIOR
cost behavior is the foundation upon which managerial accounting
is biult. Cost can be variable , fixed , or stepped.
There are 4 main type of cost or elements of cost behavior patterns;
1. Fixed costs
2. Variable costs
3. Mixed costs
4. Stepped costs
Fixed cost-the cost that remain the same in total
with changes in activity is called a fixed cost. A
fixed cost describes a cost that is fixed(does not
change) in total with changes in value of activity.

The first chart shows that fixed cost reamins 50,000 at all
production levels from 100 units ro 1,000 units.
Chat shows that the fixed cost per unit decreases as production
increases
 Committed Fixed Costs
A committed fixed cost is a fixed cost that cannot easily be
changed in the short run without having a significant impact
on the organization.
Discretionary Fixed Costs
A discretionary fixed cost is a fixed cost that can be changed
in the short run without having a significant impact on the
organization.
Variable Costs
This cost behavior pattern is called a variable cost. A variable
cost describes a cost that varies in total with changes in
volume of activity. The activity in this example is the number
of motor produced and sold.
THE FOLLOWING TEO CHARTS DEPICT THIS RELATIONSHIP BETWEEN FIXED COST
AND VARIABLE VERSUS OUTPUT VOLUME
Mixed Cost - the third type of cost that behaves differently in
that both total and per unit costs change and changes in
activity is called mixed cost. The term mixed cost describes a
cost that has a mix of fixed and variables costs.

Step Cost- step cost are cost that do not change in direct
proportion to increasing levels of activity. In other words, step
costs are constant at a certain activity level but increase or
decrease when an activity threshold is met. Step cost are also
known as semifixed costs..
 SHORT TERM Vs. LONG TERM and THE RELEVANT
RANGE
Variable, fixed, and mixed cost concepts are useful for short-
term decision making and therefore apply to a specific period
of time. This short-term period will vary depending on the
company’s current production capacity and the time required
to change capacity. In the long term, all cost behavior patterns
will likely change.
 The Relevant Range

The relevant range is the range of activity for which cost

behavior patterns are likely to be accurate. The variables, fixed,
mixed costs identified for motor unlimited will only be
accurate within a certain range of activity. Once the firm goes
outside that range, soct estimates are not necessarily accurate
and often must be reevaluated and recalculated.
 FORMAT OF THE INCOME
STATEMENT
The Single Step Income Statement- Presents single
subtotal for all revenue and expenses line items, with
a net gain or loss appearing at the bottom of the
report.
Net Income=(Revenue+Gains)-(Expenses+Losses)
Multi-Step Income Statement
- An alternative to the single-step income statement id the
mutli-step income statement, because it uses subtractions in
computing the net income shown on the botton line. The
multi-step profit and loss statement segregates the opening
revenues and operating expenses from the non-operating
revenues, non-operating expenses, gains, and losses. The
multi-step income statement also shows the gross profit(net
slaes minus the cost of goods sold).
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