1ACN

• Cost is the measurement in monetary terms, of the amount of resources used for the production of goods or rendering services.
• Cost is the cash or cash equivalent sacrificed for goods and services that are expected to bring current or future benefit to the organization.
• Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are of financial character and interpreting the results thereof.
• Cost accounting is the field of accounting that measures, records, and reports information about costs.
• Financial accounting is focused on providing financial data to external stakeholders.
• Managerial accounting is focused on providing data to internal stakeholders.
• Cost accounting is an intersection between financial and managerial accounting providing information needed by the financial and managerial accounting.
• Cost accounting provides product cost information to external parties.
• The three uses of accounting data are

  1. Determining Product Cost
  2. Decision Making
  3. Planning and Control
• Process of determining product cost

  1. determining the selling price of a product
  2. meeting competition
  3. bidding on contracts
  4. analyzing profitability.
• Planning and Control - Planning is the construction of a detailed operating program and the process of sensing external opportunities (e.g. SWOT).
• 1. There are three kinds of plans.

  • Strategic, concerned with setting long range goals and objectives.
  • Tactical, concerned with plans for a shorter range or time.
  • Operational, concerned with day-to-day implementation of tactical plans.
• Control is management’s systematic effort to achieve objectives. Activities are continually monitored to see that results stay within boundaries.
• Parts of a cost accounting system

  1. An Input Measurement Basis (System of Accumulating Costs)
  2. An Inventory Valuation Method
  3. Methods (Procedures) of Accumulating Costs / Cost Accumulation Method
  4. Cost Flow Assumption
  5. Capability of recording cost flows at certain intervals (Accounting System of Inventories)
• Historical costing has actual direct materials, actual direct labors, and actual factory overhead.
• Standard costing has standard direct materials, standard direct labors, and standard factory overhead.
• Standard costs is also known as predetermined costs
• Normal costing has actual direct materials, actual direct labors, and standard factory overhead.
• Parts of an input measurement basis are historical costing, standard costing, and normal costing.
• An Inventory Valuation Method is made out of throughput costing, direct/variable costing, full absorption coting, and activity based costing.
• Throughput costing means direct materials are in inventory while direct labor and factory overhead are in expense
• Direct/variable costing means direct materials, direct labor, and variable factory overhead are in inventory while fixed factory overhead are in expense. Inventory is in expense.
• Full absorption costing means direct materials, direct labor, and variable factory overhead, and fixed factory overhead are all in inventory. Inventory is in expense.
• Activity based costing means direct materials, direct labor, and variable factory overhead, and fixed factory overhead are all in activity cost pools then in inventory. Inventory is in expense.
• Inventory is only recognized as an expense once sold.
• Methods (Procedures) of Accumulating Costs / Cost Accumulation Method are made out of four parts

  1. Job Order Costing
  2. Process Costing
  3. Backflush Costing
  4. Hybrid Costing
• Job Order Costing keeps the cost of different jobs, orders, contracts, separate during manufacture. Each job has a different cost, each product is considered different (heterogenous), and the product may be based on customer’s specifications.
• Process Costing means products are not separately distinguishable (homogenous). Applicable to companies with large quantities of products.
• Backflush Costing is the adaptation of ‘Just in Time’ inventory system. Inventories are there once needed, the goal is to zero out or minimize inventory.
• In Backflush Costing the costing process is delayed until the production of goods is actually finished.
• Hybrid Costing is the combination of job order and process costing method.
• Cost Flow Assumption has four parts

  1. Specific Identification
  2. First in, First out (FIFO)
  3. Last in, First out (LIFO)
  4. Weighted Average
• Capability of recording cost flows at certain intervals (Accounting System of Inventories) is also referred as recording interval capabilities.
• Capability of recording cost flows at certain intervals (Accounting System of Inventories) has two types perpetual and periodic
• Perpetual cost flows requires maintenance of records called stock card updates inventory accounts after each purchase and sale.
• Periodic cost flows requires the physical counting of inventories on hand at the end of the accounting period to total inventories.