Cost classification

• Value chain is the set of activities that transforms raw resources into goods and services that end users purchase and consume and the treatment or disposal of any waste generated by them. (putting value into raw resources)
• Value added activities adding extra value into their product due to non-controllable fees of the production process.
• Management accounting measures and report financial and nonfinancial information that help manager make decisions and fulfill goals of an organization.
• Financial accounting provides reports directed to external parties. It measures and records business transactions and provides financial statement that are based on International Financial Reporting Standards(IFRS).
• Cost Accounting is the subfield of accounting that records, measures, and report information about the costs.
• Cost is the value forgone or sacrifice of resources for the purpose of achieving some economic benefit which will promote generating revenue/profit making.
• Cost accounting provides information to management and financial accounting about the organizations's acquisistion and consumption of resources.
• Cost accumulation involves the collection of cost data in some organized way by means of an accounting system
• Cost assignment beyond accumulating costs, the costing system traces direct costs and allocates indirect costs to designated cost objects(such as the different books the publisher publishes). This process enables managers to calculate total costs and unit costs of products and services and use this information for pricing, product mix, and cost management decisions.
• Management Accounting


  It measures and report financial and nonfinancial information that help managers make decisions to fulfill the goals of an organization. Managers use management accounting information to choose, communicate, and implement strategy.
• Financial Accounting


  It provides reports about the financial information directly to the external users such as creditors, investors, and government authorities. It measures and record business transaction and provides financial statement about the performance, financial position, and cash flows of a company.
• Cost Accounting


  It provides information to the management accounting and financial accounting. It measures and reports financial and other information related to the organization's acquisition and consumption of resources.
• Value Chain


  Set of activities that transforms raw resources into the goods and services that end users purchase and consume and the treatment or disposal of any waste generated by then.
• Performance measure


  Use to evaluate the performance of key suppliers and business partners.
• Just in Time method


  Using JIT method companies produce or purchase units just in time for use, keeping inventories at minimum. If inventories are low, accountants can spend less time on inventory valuation for external reporting and more time on managerial activities.
• Cost


  Value forgone or sacrifice of resources for the purpose of achieving some economic benefit which will promote generating revenue/profit making.
• Classification of cost

  • Cost pool - Collected by group. Ex: by type of cost in different product, by sources (department), responsibilities (managers)
  • Cost Object - Any product, service or organizational unit to which costs are assigned for some management purpose. Depending on whether management's focus.
• Cost pools


  Cost collected into meaningful/by groups. E.g. by labor, by source, by responsibility.
• Cost object


  Any product, service or organizational unit to which costs are assigned for some management purpose.
• Cost drivers


  A critical first step for achieving a competitive advantage is to identify the key cost drivers in a firm or organization. (e.g. for research and development= number of research projects and manpower). Any cost that affecting the level of total cost/production.
• Cost Assignment


  Process of assigning cost to cost pools or from cost pools to object.
• Cost Allocation


  Assignment of indirect costs to cost pools. It bases are cost drivers used to allocate cost. (Period cost)
• Classification of Cost

  • Manufacturing Cost - Are all costs associated with production of goods. They are frequently classified as direct materials, direct labor, and factory overhead. It is the inventoriable assets, and can be later called as an expense once the finished goods are sold. Also known as Product Cost
  • Period Cost/Non Manufacturing Cost - Generally include costs related to selling and other activities not related to the production of goods. All operating expense: Marketing Expense, Administrative Expense, Selling Expense
• Variable Cost


  Cost that changes directly in proportion to changes in activity. It is dependent to the level of activity (volume).
• Fixed Cost


  Cost that remains unchanged regardless of the change in level of activity. It is independent of the level of production.
• Semivariable or Mixed Cost


  Combination of variable and fixed cost. E.g. security taxes, materials handling, personnel commission, heat, ;ight, and power.
• Cost Classified by Types of Inventory

  • Raw Materials Inventory
  • Work-In-Process Inventory
  • Finished Good Inventory
  • Merchandising Inventory
• Direct Cost


  Cost that can be economically traced to a single cost object.
• Indirect Cost


  Costs that are not directly or easily traceable to the cost object.
• Controllable Cost


  Significantly influenced by the managers within the time period. Example yung quantity ng materials na bibilhin, you have control with it on how many you want to produce.
• Noncontrollable Cost


  Manager does not have a significant influence. Example yung rent or utilities, wala kang control over it kase it is regulated or control by the others.
• Standard Cost


  Predetermined cost estimate that should be attained; usually expressed in terms of cost per unit. (Estimated amount)
• Budgeted Cost


  Used to represent expected/planned cost for a given period. (Exact amount)
• Absorption Cost


  Costing method that includes all manufacturing cost in the cost of a unit of product.
• Direct Costing


  Type of product costing where fixed costs are charged against revenue as incurred and are not assigned to specific units of product manufactured. (Variable Costing). All Cost and Expense/ Units of product
• Information Cost


  Costs of obtaining information.
• Ordering Cost


  Costs that increase with the number of orders placed for inventory
• Out-of-pocket Costs


  Costs that must be met with a current expenditure or cash outlay.
• Committed Cost


  Cost that is inevitable consequence of a previous commitment
• Discretionary Cost


  Cost for which the size or the time incurrence is a matter of choice.