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    Module 1 Introduction To Cost Accounting

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    Rizeth Ahne Marie Garay
    This document provides an introduction to cost accounting, including: 1. It defines cost accounting and managerial accounting, and contrasts them with financial accounting. 2. It describes important cost accounting concepts like direct materials, direct labor, manufacturing overhead, inventory accounts, and cost systems like job order costing and process costing. 3. It outlines the job order costing cycle, including procurement, production, warehousing, selling, and recording costs.

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    Module 1 Introduction To Cost Accounting

    Uploaded by

    Rizeth Ahne Marie Garay
    26 views4 pages
    This document provides an introduction to cost accounting, including: 1. It defines cost accounting and managerial accounting, and contrasts them with financial accounting. 2. It describes important cost accounting concepts like direct materials, direct labor, manufacturing overhead, inventory accounts, and cost systems like job order costing and process costing. 3. It outlines the job order costing cycle, including procurement, production, warehousing, selling, and recording costs.

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    Module 1 Introduction to Cost Accounting

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    This document provides an introduction to cost accounting, including: 1. It defines cost accounting and managerial accounting, and contrasts them with financial accounting. 2. It describes important cost accounting concepts like direct materials, direct labor, manufacturing overhead, inventory accounts, and cost systems like job order costing and process costing. 3. It outlines the job order costing cycle, including procurement, production, warehousing, selling, and recording costs.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    26 views4 pages

    Module 1 Introduction To Cost Accounting

    Uploaded by

    Rizeth Ahne Marie Garay
    This document provides an introduction to cost accounting, including: 1. It defines cost accounting and managerial accounting, and contrasts them with financial accounting. 2. It describes important cost accounting concepts like direct materials, direct labor, manufacturing overhead, inventory accounts, and cost systems like job order costing and process costing. 3. It outlines the job order costing cycle, including procurement, production, warehousing, selling, and recording costs.

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    © All Rights Reserved
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    of 4

    MODULE 1: Introduction to Cost Accounting

    Cost Accounting & Control

    LEARNING OUTCOMES

    At the end of the module, you are expected to exhibit the following competencies:
    1. Recognize the concepts of cost accounting
    2. Integrate the relationships of cost accounting to other areas of accounting
    3. Describe the concepts of cost systems and cost accounting cycle

    IMPORTANT CONCEPTS

     Managerial Accounting - is the process of identification, measurement, accumulation, analysis, preparation,


    interpretation, and communication of information that assists executives in fulfilling organizational objectives.

     Financial Accounting - involves recordkeeping of business transactions governed by generally accepted


    accounting principles, leading to the preparation of financial statements for use of internal as well as external
    decision makers.

    Management Accounting vs. Financial Accounting

    Primary users of information


    MA – Organization managers at various levels.
    FA – Outside users such as creditors, investors, government as well as organization managers.
    Types of accounting system
    MA – Not restricted to double-entry system, any useful system.
    FA – Double entry system.
    Restrictive guidelines
    MA – No guides or restrictions; only criterion is usefulness.
    FA – Adherence to GAAP is required.
    Units of measurement
    MA – Any useful monetary or physical measurement such as labor hour or machine hour or pesos.
    FA – Historical peso.
    Focal point of analysis
    MA – Various segments of business entity.
    FA – Business entity as a whole.
    Frequency of reporting
    MA – Whenever needed, may not be on a regular basis.
    FA – Periodically on regular basis.
    Degree of reliability
    MA – Heavily subjective for planning purposes, but objective data are used when relevant, futuristic in
    nature.
    FA – Demands objectivity, historical in nature.

     Cost Accounting - is a system that records, summarizes, analyzes, and interprets the details of the costs of
    materials, labor, and overhead necessary to produce and sell an article. Basically, cost accounting refers to the
    Module 1 Page 1 of 4
    Introduction to Cost Accounting
    gathering and providing information for decision needs of all sorts ranging from the management of recurring
    operations to the making of strategic decisions and the formulation of major organizational policies.

    Cost accounting furnishes management with the necessary accounting tools for planning and controlling activities.
    Specifically, the gathering, presentation, and analysis of cost data will help management in answering the
    following questions:
    1. Is our plant operating efficiently and economically?
    2. Which of our costs are out of line, and how can they be controlled?
    3. Are our sales prices set realistically in relation to cost?
    4. What is the unit cost of each type of product being manufactured?

    Estimating and Bidding


    Under competitive pressure, the decisive difference in a bid may be as little as a fraction of a cent per unit.
    Attempting to bid without detailed cost information can mean losing the job, or it can mean winning the job but
    having to perform the work at a loss.

    Planning, Budgets, and Control


    The cost accounting system also provides vital information needed to plan future operations. Cost data help resolve
    questions relating to proposed projects or policies, such as:
    1. Should we build a new plant or modernize the old one?
    2. How far can we go in lowering prices to increase our volume of sales?
    3. What will be the effect on costs of automating part of our factory operations?

     Manufacturing Costs

    Direct Materials – are those materials used in the manufacturing process that become a significant part of the
    finished goods.
    Direct Labor – the employees who work directly with the raw materials in converting them to finished goods
    represent direct labor.
    Manufacturing Overhead – all costs that cannot be considered direct materials or direct labor

    Manufacturing Overhead
    Indirect Materials – materials that are used in small amounts in the manufacturing process or that cannot easily be
    traced to specific products.
    Indirect Labor – the wages of factory personnel who do not work directly on raw materials.

     Inventories of a Manufacturing Company


    Raw Materials Inventory – reflects the cost of raw materials and factory supplies that will be used in the
    manufacturing process.
    Work in Process Inventory – reflects the cost of raw materials, direct labor, and manufacturing overhead of goods on
    which manufacturing has begun but has not been completed.
    Finished Goods Inventory – reflects the cost of goods that have been completed and are ready for sale.

    Module 1 Page 2 of 4
    Introduction to Cost Accounting
     System of Cost Accumulation
    1. Actual Cost System – manufacturing costs are determined as they occur simultaneously with the
    manufacturing operation, but the total of these cost is known only after operation has been completed.
    2. Standard Cost System – costs are determined in advance from analysis and forecasts made before the actual
    production begins.
    3. Normal Cost System – accumulates only the actual amount of direct material and direct labor costs.

     Types of Cost Systems


    1. Job Order Cost System – accumulates costs applicable to each specified job order or lot of similar goods
    manufactured on a specific order for stock or for a customer.
    2. Process Cost System – accumulates cost without attempting to allocate them during the accounting period to
    specific units of goods being manufactured.

     Introduction to the Job Order Cost Cycle

    Workflow
    1. Procurement: Materials and supplies needed for manufacturing are ordered, received, and stored. Direct and
    indirect factory labor and services are obtained.
    2. Production: Materials are transferred from the storeroom to the factory. Labor tools, machines, power, and
    other costs are applied to complete the product.
    3. Warehousing: Finished goods are moved from the factory to the warehouse to be held until they are sold.
    4. Selling: Customers are found. Merchandise is shipped from the warehouse. Sales to customers are recorded.
    PPWC

    Recording Costs
    1. Procurement: Accounts must be provided to record the purchase of materials, labor and overhead. These
    costs will later be charged to production.
    2. Production: An account is required to gather procurement costs as they become chargeable to
    manufacturing operations.
    3. Warehousing: An account must be set up to record the cost of goods that have completed manufacturing
    process.
    4. Selling: The cost of the completed goods that have been sold must be recorded.

    Module 1 Page 3 of 4
    Introduction to Cost Accounting
    EXERCISE

    Indicate whether the following statements are true or false by inserting in the blank space provided a “T” for true and
    “F” for false.
    ____1. Reports prepared in financial accounting are general-purpose reports, whereas reports prepared in
    managerial accounting are usually special-purpose reports.
    ____2. Managerial accounting internal reports are prepared more frequently than are classified financial statements.
    ____3. Determining the unit cost of manufacturing a product is an output of financial accounting.
    ____4. Management accounting applies to all forms of business organizations.
    ____5. Controlling is the process of determining whether planned goals are being met.
    ____6. Managerial accounting information generally pertains to an entity as a whole and is highly aggregated.
    ____7. Job order costing system is for allocating costs to group of unique product and is applicable to the production
    of customer specified products such as the manufacture of special machine.
    ____8. Process costing is used by companies making one-of-a-kind products.
    ____9. Operation costing is a hybrid costing system often used in repetitive manufacturing where finished products
    have common as well as distinguishing characteristics.
    ____10. Cost accounting procedures help management in gathering the data needed to determine product costs and
    thus generate meaningful financial statements and other reports.

    Module 1 Page 4 of 4

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