MS3

COST CONCEPTS

Accountants
Financial accountants provide information to external parties
•Creditors - ang gapautang

•Regulators - the govt.

•Investors

•Donors

- provide infos through financial statement

- outside/ external organization

Managerial accountants provide information to internal users

•Managers

•Decision makers

- users inside the organization

Cost accountants provide information to both internal and external users

• Product cost information

- both outside and inside, cost information about product

Accounting Differences

Financial

- External focus

- Whole Organization

- Historical

- Quantitative

- Nonetary

- Verifiable

- GAAP

- Formal recordkeeping

Managerial

- Internal focus

- Segments or divisions

- Current/ Projected

- Quantitative/ qualitative

- Monetary and nonmonetary

- Timely/ reasonable estimate

- Benefits exceed costs

- Formal and informal recordkeeping

GAAP- General Accepted Accounting Principle

Formal recordkeeping- journal entry for financial

Product Cost Information

• External Parties - stockholders, creditors, regulators, and donors

 - For investment and credit decisions

- Complies with GAAP

- Enterprise focus

• Internal Parties - managers

- Planning, controlling, nd decision making

- Evaluating performance

- Includes upstream nd downstream costs

- Disaggregated

Assigning Costs to Cost Objects

Direct Costs

- costs that can be easily and conveniently traced to a unit of product or other cost object.

Example:

* direct material

* direct labor

Indirect Costs

- costs that cannot be easily and conveniently traced to a unit of product or other cost object.

Example:

* manufacturing overhead

Notes:

Unexpired Cost - seen in the balance sheet

Supply Expense or Expired Cost - seen in income statement

Cost Objects

eg. finished products

- classify cost according to its association according to its cost objects.

- where we accumulate (tipon ang) cost

eg. finished goods ( pila ang nagasto)

Classification of Manufacturing Costs

Manufacturing or production cost - overall cost

Direct Materials

- raw materials that become an integral part of the product and that can be conveniently traced
directly to it.

Example: A radio installed in an automobile

Direct Labor

- labor costs that can be easily traced to individual units of product

Example: Wages paid to automobile assembly workers

* carpenter 'manual production' (direct), supervisor (indirect)

Manufacturing (Factoring) Overhead

- manufacturing costs that cannot be easily traced directly to specific units produced.

Examples: indirect materials and indirect labor

Indirect Materials - materials used to upport the production process.

Examples: lubricants and cleaning supplies used in the automobile assembly plant.

Indirect Labor - wages paid to employees who re not directly involved in production work.

Examples: maintenance workers, janitors, and security guards.

Nonmanufacturing Costs

• Selling costs - costs necessary to secure the order and deliver the product.

• Administrative costs - all executive, organizational and clerical costs.

- costs not related to production

 eg. selling price (shipping fee)

Product Costs include direct materials, direct labor and manufacturing overhead

Period Costs include all selling costs and administrative costs.

Classification of Costs

Manufacturing costs are often classified as follows:

Cost Classifications for Predicting Cost Behaviour

- cost behavior refers to how a cost will react to changes in the level of activity. The most common
classifications are:

• Variable costs- as consumption increase, total cause also increases

Variable Cost per unit - constant

 • Fixed costs - constant in fixed cost because you're still paying it at the same price

eg. wifi

Fixed cost per unit - as production increases, the fixed cost per unit decreases

• Mixed costs

Types of Fixed Costs

Commited - long term, cannot be significantly reduced in short term.

Examples: Depreciation on Buildings and Equipment and Real Estate Taxes

Discretionary - may be altered in the short-term by current managerial decisions.

Examples: Advertising and Research and Develolment.