Cost System and Cost

Accumulation
Carter – Usry: 1994
Carter – Usry: 1994
Arrows Labelled
(a) Payments on account
(b) Expenses paid in advance
(c) Purchases & improvement of
long lived manufacturing assets
(d) Various payment of resources
(e) Payments of wages and
salaries
(f) Purchases of raw materials and
factory supplies on credit
(g) Recording payroll
(h) Issuing Factory Supplies
(Indirect Materials) to
Production
(i) Incurring various indirect
manufacturing costs on credit
(j) Manufacturing portion of any
prepayment that have expired
(k) Manufacturing portion of
depreciation
(l) Manufacturing portion of
various other resources used
(m) Charging all types of indirect
labor costs to production
(n) Issuing direct materials to
production
(o) Charging manufacturing OH
costs to production
(p) Charging direct labor costs to
production
(q) Charging costs of completed
units to the finished goods
accounts
(r) Charging costs of sold units to
the COGS
Reporting the Results of the
Operations

 The Balance Sheet  Financial statements

that show the value of the firm’s assets and
liabilities at a particular point in time
 COST ACCOUNTS

1. Materials
2. Payroll
3. Factory/Manufacturing overhead
4. Work In Process
5. Finished goods
 The Main Balance Sheet Items


Current Assets Current Liabilities
Cash & Securities Payables
Short-term Debt
Receivables
Inventories
+
+
=
Long-term Liabilities
Fixed Assets
Tangible Assets +
Intangible Assets
Shareholders’ Equity
The Income Statement
 Financial statement that shows the revenues,
expenses, and net income of a firm over a period
of time

Earnings Before Income & Taxes (EBIT)

EBIT = - total revenues
- cost of goods sold
- commercial expenses
Costing is the process of
determining the cost of doing
something,i.e., the cost of
products or services.
 Actual/
Historical
Cost System

Normal
Costing Measuring Costs
System

Standard
Cost
System
Actual Costing System
Costs charged to production:
 Actual Direct Materials
 Actual Direct Labor
 Actual Manufacturing Overhead
Normal Costing System

Costs charged to production:

 Actual Direct Materials
 Actual Direct Labor
 Estimated Manufacturing Overhead
Standard Costing System

Costs charged to production:

 Standard Direct Materials
 Standard Direct Labor
 Standard Manufacturing Overhead
Job-Order Costing . . .
 Wide variety of distinct products.

 Costs accumulated by job (batch, lot, or

customer order)
 Unit cost = total cost of job divided by
number of units produced.
 Job-Order Costing
Job 100

DM Cost of
Finished Goods
DL Job 101
Goods Sold
MOH

Job 102

Work in Process Finished Goods Cost of Goods Sold

Process Costing . . .
 Homogeneous products continuously
produced.
 Costs accumulated by process or by
department.
 Unit cost = total cost for period divided by
number of units produced.
 Process Costing System
Process A

DM
Process B
DL
MOH
Finished Cost of
Process C Goods Goods Sold
Full (Absorption) Costing
Absorption costing income statement
 classify costs based on functions
 inventory composed of variable and fixed
production costs
 net income is function of sales and production
Revenue
Manufacturing costs
Gross Profit
Commercial expenses
Operating income
Variable Costing
 also called direct costing
 classify costs based on behaviour
 inventory composed of variable production costs
only
 net income is a function of sales
Revenue
Variable costs
Contribution margin
Fixed costs
Operating income
Activity-Based Costing (ABC)
 refinement of an existing cost system which focuses on individual
activities as the basic cost objects
 an activity is an event, task, or unit of work with a specified
purpose
 examples of activities include designing the product or service, set
up of machinery, operating machinery, distribution of finished
product, administration
Fundamental Allocations to
Cost Object Other Cost Objects
Cost of
Costs of • Product
Activities
Activities • Service
• Customer