CHAPTER 1 COST ACC

• Financial accounting


  Primarily concerned with financial statements for external use by those who supply funds to the entity and other persons who may have vested interest in the financial operations of the firm
• Managerial accounting


  Concerned with the identification, measurement, analysis, and interpretation of accounting information so that it can be used to help managers make informed operational decisions
• Cost accounting


  Provides a basis for determining product cost and aids management in planning and controlling operations

  
• Financial accounting attempts to present some degree of precision in reporting historical information while at the same time emphasizing verifiability and freedom from bias in the information, relevance to the general user and some degree of timeliness in reporting which is not as critical in managerial accounting
• The timing of information and its relevance to the decision on hand has greater significance to the internal decision-maker (Management Accounting)
• Merchandising operations


  • Buying and reselling merchandise without changing its form
• Manufacturing operations


  • Transforming raw materials into finished products
• Cost of Goods Sold for a Merchandising Company

  1. Beginning Inventory

  2. Purchases

  3. Ending Inventory

  
• Cost of Goods Sold for a Manufacturing Company

  1. Beginning Work in Process

  2. Direct Materials

  3. Direct Labor

  4. Manufacturing Overhead

  5. Ending Work in Process
• Uses of Cost Accounting Data

  • Determining product cost
  • Planning and controlling operations
  • Determining selling price
  • Meeting competition
  • Bidding on contracts
  • Analyzing profitability

  
• Planning


  • Establishing objectives or goals for the firm and determining the means by which the firm will attain them
• Control


  • Monitoring the company's operations and determining whether the objectives identified in the planning process are being accomplished
• Types of Planning


  • Strategic Planning (long-range goals)
  • Tactical Planning (short-range goals)
  • Operations Planning (day-to-day implementations)
• Cost accounting provides data for use in decision models for finance, operations management, and marketing

  
• Job-order costing


  A system for allocating costs to groups of unique product. It is applicable to the production of customer specified products such as the manufacture of special machines.
• Job-order costing


  • Direct materials, direct labor, and factory overhead costs are assigned to specific job orders or batches of production
  • Unit costs are computed by dividing the total manufacturing costs for each job order by the number of good units produced for that order
• Process costing


  • A system applicable to a continuous process of production of the same or similar goods, e.g., oil refining and chemical production
  • Unit costs are computed by dividing total manufacturing costs assigned to a particular department or work center during a period by the equivalent unit of production

  
• Many manufacturing firms have production systems which are not suited for strictly job-order costing or process costing, but instead require a costing system which incorporates ideas from both
• Operation costing


  A hybrid costing system often used in repetitive manufacturing where finished products have common, as well as distinguishing characteristics

  
• Characteristics of Operation Costing


  • Materials differ between products
  • The same labor and overhead costs are incurred for all products
• Differences between Process Costing and Job-Order Costing


  • Process Costing: Homogeneous units pass through a series of similar processes, Costs are accumulated by processing department, Unit costs are computed by dividing the individual departments' costs by the equivalent production
  • Job-Order Costing: Unique jobs are worked on during a time period, Costs are accumulated by individual job, Unit costs are determined by dividing the total costs on the job cost sheet by the number of units on the job