COST ACCOUNTING AND
- Buying raw materials, labor, and
CONTROL
Introduction to Cost Accounting
Overview of the Handouts:
1. Comparison of Financial,
Management, and Cost Accounting
2. Merchandising vs. Manufacturing
Operations
3. Uses of Cost Accounting Data
4. Overview of Costing Systems
5. Theory Questions
COMPARISION OF FINANCIAL,
MANAGEMENT, AND COST ACCOUNTING
 FINANCIAL ACCOUNTING
- Preparing financial statements for external
users (e.g. stockholders, partners, creditors,
etc.)
- Output from an accounting system, and
represent the enterprise as a whole
- Based on historical transaction data, which
may be historical, quantitative, monetary,
and verifiable
- Must be supported by evidence
- Requirement of the SEC and BIR
 MANAGEMENT ACCOUNTING
- Made to cater to the needs of parties within
the entity
- Designed to tackle individual/divisional
concerns
- Data may be
> Current or forecasted
> Quantitative or qualitative
> Monetary or non-monetary
> Futuristic
- Data must be timely
- Not required
 COST ACCOUNTING
- Combination of both financial and
management accounting
MERCHANDISING VS. MANUFACTURING
OPERATIONS
 MERCHANDISING
- Buying products for immediate resale
- Computation of COGS:
Beginning merchandise inventory
+ Total purchases………………
Cost of goods available for sale
- Ending merchandise inventory
Cost of Goods Sold
COSTCON– Introduction to Cost Accounting
 MANUFACTURING
overhead for further processing and
subsequent sale
- Maintaining three inventory accounts:
> Materials inventory
> Work in process inventory
> Finished goods inventory
- Process:
1. Cost of materials (direct materials),
labor (direct labor), and overhead
(factory overhead) items are
transferred to the Work in Process
account.
2. After production, the cost of
completed units are transferred to the
Finished Goods inventory account.
3. Once sold, these costs are
transferred to the Cost of Goods Sold
account.
4. Work in Process inventory, ending
will comprise of units that have been
started but not completed
5. Cost of unused materials for the
period comprise the Materials
Inventory, ending balance.
6. Unsold goods comprise the ending
balance of the Finished Goods
inventory.
USES OF COST ACCOUNTING DATA
 TO DETERMINE PRODUCT COSTS
- Computation of unit costs and total product
costs
- Unit cost helps in:
> Setting the selling price of a product
> Ensuring the entity remains competitive
> Determining the just bidding price on
contracts
> Analyzing profitability
 FOR PLANNING AND CONTROL
- Planning: establishing the goals and
objectives of the organization and
determining ways to attain them
> Strategic planning - long range goals,
overall direction the company want to go
> Tactical planning - shorter range goals,
how the company can attain its strategic
goals
> Operations planning - day-to-day
implementation of the company’s set
tactical plans
- Control: monitor the company’s operations
 6. Financial accounting makes use of
OVERVIEW OF COSTING SYSTEMS historical, qualitative, and monetary
 JOB ORDER COSTING information.
- Used in businesses that manufacture or 7. In job order costing, each job becomes a
sell unique products / customer-specified cost center, and costs are measured per
products time period.
- Each job becomes a cost center, and costs 8. Process costing is used by companies
are measured for each completed job rather that produce homogeneous items.
than for specific time periods 9. Job order costing requires the cost
- To get the unit cost, determine the total accountant to maintain several Work in
manufacturing costs for each job and divide Process Inventory accounts.
it by the number of good units produced for 10. In management accounting, the primary
that job goal is to generate results and data useful
- Uses only one Work in Process Inventory for managers and internal users in a timely
Control account, supported by a subsidiary manner.
ledger
 JOB ORDER VS PROCESS COSTING
 PROCESS COSTING Determine which product-costing system
- Used by companies that produce large is more applicable in the production of
quantities of similar products, or have a the following items:
continuous production flow 1. A wooden furniture set
- Costs are accumulated per period of time 2. Soda
- To get unit cost, determine the total 3. 10 airplanes
manufacturing costs per department and 4. 300 identical washing machines
divide it by the equivalent unit of production. 5. Paint
Add all unit costs per department to get the 6. A set of custom chest drawers
total unit cost of the product. 7. Ice cream
- Uses several Work in Process Inventory 8. An annual audit engagement
accounts 9. Light bulbs
10. Ships
 HYBRID COSTING
- Incorporates ideas from both job order and  ANSWER KEY
process costing to suit the entity’s needs  True or False
- Example: Operation costing 1. False
> Used in repetitive manufacturing where 2. False
products share common characteristics but 3. True
are still distinguished 4. True
> Product and related costs are 5. False
accumulated by batches or production runs 6. False
7. False
THEORY QUESTIONS 8. True
 TRUE OR FALSE 9. False
1. Financial accounting is concerned with 10. True
the preparation of financial statements for  Job Order vs Process Costing
internal users. 1. Job order costing
2. Manufacturing operations revolve around 2. Process costing
buying products for immediate resale. 3. Job order costing
3. Management accounting activities are not 4. Job order costing
required by the Securities and Exchange 5. Process costing
Commission. 6. Job order costing
4. Cost accounting data can be useful in 7. Process costing
analyzing profitability. 8. Job order costing
5. Strategic planning is concerned with an 9. Process costing
entity’s short-term goals, and the attainment 10. Job order costing
of tactical plans.

COSTCON– Introduction to Cost Accounting