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Management Accounting and Control

Ma. April R. dela Cruz
Introduction to Cost Accounting and Management
Flow of Costs in a Merchandising and Manufacturing
Job Order Costing System
Process Costing System
Job Order VS Process Costing: Comparison and System
Operation Costing
Distinguish between process costing and job-
order costing and operation costing
Identify companies that would use each costing
Determine basis for operating policy/decision
making and evaluating courses of actions
Introduction to Cost Accounting
and Management
- Records
- Measures
- Reports
Evaluating Alternative
Courses of Action
Control of Costs

Determine Arrange
the costs for control and
guidance making

Advise Appropriate Cost Efficiency

and Capability
COST Accounting
Cost price paid for

Cost ascertainment actual

costs incurred
Cost estimation -
predetermined costs of goods
and services

Estimation of Ascertainment of
costs costs Cost control

Cost of Determining Selling preparation of
Reduction Price financial and
other statement

Providing basis for operating policy

Elements of Costs
Flow of Costs in a Merchandising and
Manufacturing Company
Cost Flow Methods
Manufacturing companies produce goods
which may be sold to merchandising companies as
well as directly to customers. Manufacturing
companies normally have three inventory accounts.
These are:

Raw materials
Work in process
Finished goods
Raw Materials
The cost assigned to goods and
materials on hand but not yet placed
into production is reported as raw
materials inventory.
Work in Process
Some units are not completely processed at any
point in a continuous process. The cost of the raw
material on which production has been started
but not completed, plus the direct labor
cost applied specifically to this material and a ratable
share of manufacturing overhead costs, constitute
the work in process inventory.
Finished Goods Inventory
The costs identified with
the completed but
unsold units on hand at
the end of the fiscal
period are reported
as finished goods
Merchandising Companies

ready for sale

Job-Order Costing
Job-Order Costing System

Job Order Form
Job Order Costing in Service Companies
Job-order Costing

Direct Material (DM)

+ Direct Labor (DL)
+ Manufacturing Overhead (MOH)
= Cost of Product
Direct Materials
Direct Labor
Manufacturing Overhead
Predetermined estimated MOH =

Estimated TOTAL MOH

Estimated Base
Process Costing System
Job Order VS Process Costing: Comparison
and System Choice
Uniqueness of product. Job costing is used for
unique products, and process costing is used for
standardized products.
Size of job. Job costing is used for very small
production runs, and process costing is used for
large production runs
Record keeping. Much more record keeping is required for
job costing, since time and materials must be charged to
specific jobs. Process costing aggregates costs, and so
requires less record keeping.
Customer billing. Job costing is more likely to be used for
billings to customers, since it details the exact costs
consumed by projects commissioned by customers.
Job Costing Process Costing

Accumulates Costs by Accumulates costs by

jobs process/departments

Assigns actual DM and Assigns actual DM, DL and MOH

DL cost to job to processing departments

The allocates total costs to

Allocates MOH to jobs
units produced

Utilizes a single WIP Utilizes a multiple WIP control

control account account (one for each account)

Raw Work in Finished Cost of

Materials Process Goods Goods Sold


Raw Work in Finished Cost of Goods

Materials Process #1 Goods Sold

Work in
Process #2

Work in
Process #3
Physical Units
Actual number of units the company works on, regardless if the
units are finished at the end of month or not

Equivalent Units
Number of full units that could have been completed if all efforts had
been put forth to only start and complete units rather than
leaving some units partially finished
Process Costing Method
Segregates current period
No separation between
production work from work
current and prior work
effort in the beginning WIP

Combines units and Considered most accurate

costs from prior and than the weighted-average
current periods method
Cost Categories

Direct Materials

Conversion costs

Transferred-in costs
Steps in Process Costing
Step 1: Summarizes the physical units

Step 2: Determine the equivalent units

Step 3: Determine the accumulated costs separately

for transferred-in costs, DM and CC

Step 4: Determine the costs per equivalent unit

separately for DM and CC

Step 5: Assign the cost per unit to units transferred to

finished goods and units in ending work in process
Process Costing

Unit Product Cost = Total Manufacturing Cost

Total Units Produced

Food for the Grads started this month with 1,200 units on
hand and started on new 2,100 units. There were 800 units
in ending inventory that are 40% complete. Materials are
added at the beginning of the production process. How
many equivalent units were produced in June?
Using Weighted-average method
Direct Materials Conversion Costs
Unit in beginning WIP inventory 1,200
Unit Started in June 2,100
Units to be accounted for 3,300

Units completed and transferred- 2,500 2,500 (100%) 2,500 (100%)

Units in ending WIP inventory 800 800 (100%) 320 (40%)
Units accounted for 3,300 3,300 2,820
Equivalent units for Equivalent units for
materials CC
Operation Costing

MIX of job costing and process costing

USED in either of the following situations:
A product initially uses different raw materials,
and is then finished using a common process
that is the same for a group of products
A product initially has identical processing for a
group of products, and is then finished using
more product-specific procedures.
Direct Trace Actual Costs
Conversion Allocate
Costs conversion costs

Determine CC rate =

Estimated direct labor cost + Overhead cost

Estimated activity
Chief Deli creates deli platters for catering services. The deli
platter orders require the same assembly operations but
different ingredients. The company uses operation costing
and assigns conversion costs based on the pounds of meat
used. The following information was available for May

How much is the cost for order 328?

Order Order TOTAL
324 328
Pounds of deli meat 450 750 1,200
Cost per pound of P 3.80 P 4.50
deli meat
Direct Labor hours 140 160 300
Labor cost per hour P 15.00

Total Production P 2,400

Overhead cost