Cost

• Cost accounting provides detailed cost data for management to control current operations and plan for the future
• Companies must control costs to keep prices competitive
• Cost information is crucial in today's global environment for remaining competitive
• Financial accounting relates to classifying, recording, and analyzing business transactions to produce financial statements
• Financial accounting users include internal parties like stockholders, officers, and employees, as well as external users like financial institutions and government bodies
• Managerial accounting focuses on the needs of parties within the organization and addresses individual or divisional concerns
• Cost accounting is the intersection between financial and managerial information and is used by both financial and managerial accounting
• Cost accounting provides product cost information to external parties such as stockholders, creditors, and regulatory boards for credit and investment decisions
• Direct costs are costs that can be directly traced to a manufacturing process, job order, business unit, segment, or department
• Indirect costs are costs related to a particular object but cannot be traced to that cost object in an economically feasible way
• Prime costs are the primary costs of the product, while conversion costs are costs necessary to convert materials into a product
• Fixed costs remain unchanged as volume changes within the relevant range
• Variable costs change in direct proportion with a change in volume within the relevant range
• Semivariable costs have both fixed and variable components
• Step costs increase in total with steps when the volume changes to a particular level
• Common costs are the cost of facilities or services employed in two or more accounting periods, operations, commodities, or services
• Joint costs are the cost of materials, labor, and overhead incurred in the manufacture of two or more products at the same time
• Capital expenditure is intended to benefit more than one accounting period, while revenue expenditure benefits the current period only
• Controllable costs are subject to the influence of a given responsibility center manager, while non-controllable costs cannot be controlled by the manager
• Period costs are operating expenses associated with time periods, while product costs include direct materials, direct labor, and factory overhead
• Fixed costs are those that do not change with output, such as rent or insurance premiums.
• Cost accounting includes those parts of both financial and management accounting that collect and analyze cost information.
• Merchandising Operations- buys a product that is ready for resale when it is received.
• Manufacturing operations - transform raw material into finished goods through production processes.
• Job Order Production - produce customized products based on customer orders.
• Manufacturing Process- This process involves the conversion of direct (raw) materials, direct labor, and factory overhead into finished goods.
• Product quality- an important competitive weapon in manufacturing.
• Planning- it is the process of establishing objectives or goals for the firm and determining the means by which the firm will attain them.
• Planning can be divided into three components:

  1. Strategic Planning 2. Tactical Planning 3. Operational Planning
• Control- it is the process of monitoring the company’s operations and determining whether the objectives identified in the planning process are being accomplished.
• Job Order Cost System – Output consists of special or custom-made products.
• Process Cost System – Accumulates costs for each department or process in the factory.
• Cost- represents any amount paid or incurred in acquiring goods or services. This cost is presented in the statement of financial position as asset.
• Expense- is any amount paid or incurred in the operation of a business. These expenses are necessary to generate revenue.
• Material Cost - Used for the purpose of manufacturing a product or rendering of a service, net of trade discount, rebates, taxes and duties refundable that can be quantified with reasonable accuracy.
• Labor Cost - Consist of compensation and other benefits paid payable to permanent, casual or part time employees of the manufacturing firm.
• Expenses- Include taxes and licenses, salaries and wages, utility costs, repairs and maintenance, gasoline and others
• Non-manufacturing Costs - Recognized as expenses when the costs are incurred
• Marketing Costs- necessary to sell the products
• Administrative: Costs necessary to operate the business