CHAPTER 1
Direct Labor
Cost Accounting-field of acctg that measures, records and reports
information about costs.
Objectives
To establish inventory values for costing and pricing
purposes and at times for controlling physical quantities.
To determine cost and profit for an accounting period
To develop methods and procedures that permit control and
at the same time reduce or improve cost.
To aid and participate in the operation and execution of plans
and budget for management
To provide management with data necessary to effectively
choose from among two or more alternatives
To classify cost
Uses of Unit Cost Information
Determining the selling price of a product
Meeting competitions
Bidding on contracts
Analyzing profitability
3 Components of Planning
1. Strategic Planning- setting long range goals and
objectives
2. Tactical Planning- plans for shorter range; emphasizes
plans to achieve the strategic plans
3. Operations Planning- day to day implementation of
tactical plans
Planning- is the process of establishing goals and objectives for the
firm and determining ways to attain them.
Control- is the process of monitoring the companys operation and
determining whether the objectives identified are being met.
Differential Cost Analysis- considered as other form of applied
microeconomics
2 BASIC PRODUCT COSTING SYSTEM
1. Job Order Costing- groups of unique products
2. Process Costing- continuous process of production
Hybrid Costing- blending ideas from job order and process costing
Operation Costing- is a hybrid costing system
Job cost sheet- a subsidiary record keeping track of the work in
process and finished goods.
CHAPTER 2
Cost- is the cash or cash equivalent value sacrificed for goods and
services that are expected to bring a current or future benefit to the
organization.
Revenue- future benefit
Expenses- expired cost
Loss- cost that expires without benefit
Classification of Costs
I.As to relation to a product:
A. Manufacturing/Product Cost
1. Direct Materials
2.
3. Factory Overhead
B. Non-manufacturing/Period Cost
1. Marketing or Selling Expense
2. General or Administrative Expense
II. As to variability
A. Variable Cost - items of cost which vary directly in total in
relation to volume
B. Fixed Cost items of cost which remains constant in total;
cost per unit increases as volume decreases and vise versa.
1. Commited Fixed Cost- cost that represents
relatively long term commitments on the part
of management
2. Managed Fixed Cost- cost that are incurred
on a short term basis and can be more easily
modified in response to changes in
management objectives.
C. Mixed Cost- items of cost with fixed and variable
components
Semi-Variable Cost- ex. Cellphone using a plan
Step Cost- the fixed part of the step cost changes
abruptly at various activity levels. Ex. Supervisors
salary
III. As to relation to manufacturing departments
A. Direct Departmental Charges- immediately charged to a
particular manufacturing department
B. Indirect Departmental Charges- cost that are originally
charged to some other manufacturing department
IV. As to their nature as common or joint cost
A. Common Cost- costs of facilities or services employed in
two or more accounting periods, operations, commodities or
services.
B. Joint Cost- cost of materials, labor, and overhead incurred
in the manufacture of two or more products at the same
time.
V. As to relation to an accounting Period
A. Capital Expenditure- intended to benefit more than one
acctg period and is recorded as an asset.
B. Revenue Expenditure- will benefit the current period only
and is recorded as an expense
VI. Cost for planning, control and analytical processes
A. Standard Cost- predetermined cost for dm, dl and oh. It is
a budget for the production of one unit of product or service.
B. Opportunity Cost- the benefit given up when one
alternative is chosen over another
C. Differential Cost- present in one alternative but is absent
in whole or in part under another alternative
D. Relevant Cost- a future cost that change across the
alternatives
E. Out-of-pocket Cost- cost that requires the payment of
money as a result of their incurrence
F. Sunk Cost an outlay has already been made and it cannot
be changed by present or future decision
G. Controllable Cost- level has the power to authorize the
cost