2 -1

Class
Meeting Basic
2 Management
Accounting
Riwayadi Concepts
 2 -2

COST CONCEPT By behavior

Different cost By traceability

Many cost
for different
classification By organizational
Purposes function

Different By controllability

report for Many kinds of

different income statements Different report for
single user
purposes can be produced

Different Financial Accounting External users

System
System for
different Management
purposes Accounting System Internal users
 2 -3
INCOME STATEMENT FOR MGT
INCOME INCOME STATEMENT INCOME
STATEMENT Sales xx STATEMENT
Sales xx Controlable cost (xx) Sales xx
VC Controllable profit xx VAC (xx)
(xx)
VA profit xx
CM xx Uncontrollable cost (xx) NVAC (xx)
FC (xx) NI xx NI xx
NI xx
For division’s
For profit manager For cost
planning performance efficiency
purpose evaluation purpose (cost
(cost (cost classified classified by
classified by by value added
behaviour) controllability)
 2 -4
COST VS EXPENSE

COST
 Expenditures that gives the current and future
benefits.
 Example 1: purchasing raw materials

cost => raw material inventory (will be used to

produce finished goods)
future benefit => revenue from selling the
finished goods (raw material is part of product)
 2 -5
 Example 2: Paying the office rent for 3 years
Cost => prepaid office rent
Future benefit: using the office for 3 years
 All costs are presented in the left side of financial position
statement
EXPENSES
 Are expired cost (costs that do not anymore give future
benefit)
 Expense of finished goods inventory: cost of goods sold
 Expense of prepaid rent: rent expense
 Expense of fixed assets: depreciation expense
 Expenses are presented in the income statement
 2 -6

The objective to distinguish cost vs

expense?
 For external reporting => financial
statement for external users
(stockholders, investors, creditors, tax
office etc.) => for financial accounting
purpose
 2 -7

PRODUCT COST VS PERIOD COST Cost

PRODUCT COST
 Costs that are assigned to product Product
(inventoriable cost)
 Traditional product cost: only manufacturing
costs (RM, DL, FOH) are assigned to
products

Process = Finished Goods

RM Cost +
DLC/FOH

Product cost
 2 -8

PERIOD COST
 Cost that is assigned to current
period
 All expenses are period cost: cost
of goods sold, marketing expenses,
and administrative expenses
 2 -9

RM Cost Process = Finished Goods COGS

+ DLC/FOH

Product cost Period cost

Cost vs product cost?

Expense vs period cost?
 2 -10

Product cost is a cost assignment that

supports a well-specified managerial
objective. Thus, what product cost
means depends on the managerial
objective being served.
 2 -11

Design

Service Develop

Distribute Produce

Market
 Product Costing Definitions 2 -12

Value-Chain Operating Product Traditional Product

Product Costs Costs Costs
Research and
Development
Managerial objectives served

Production Production Production

Marketing Marketing

Customer Customer
Service Service
Strategic Pricing Decisions Strategic Design Decisions External Financial
Product-Mix Decisions Tactical Profitability Reporting
Strategic Profitability Analysis
Analysis
 Functional-Based
Functional-Based
2 -13

Management
Management Model
Model
Cost View Salary
Depreciation
Resources electricity

Operational View

Efficiency Performance
Functions
Analysis Analysis

Products
 Activity-Based
Activity-Based
2 -14

Management
Management Model
Model
Root cause Cost View Reworking
analysis Resources defect product

Process View

Driver Performance
Activities
Analysis Analysis
Why? What? How Well?

Products and
Customers

Functional-Based
1. Unit-based drivers
2. Allocation-intensive
3. Narrow and rigid product costing
4. Focus on managing cost
5. Sparse activity information
6. Maximization of individual unit
performance
7. Use of financial measures of
performance
2 -15
Activity-Based
1. Unit- and nonunit-based drivers
2. Tracing intensive
3. Broad, flexible product costing
4. Focus on managing activities
5. Detailed activity information
6. Systematic performance
maximization
7. Use of both financial and
nonfinancial measures of
performance