COST

ACCOUNTING
AND CONTROL
1st Semester A/Y 2023-2024

Rodenel B. Porteria, CPA

Course Objective
The course deals with the discussion of
the theories and application of topics
under cost accounting. It focuses on
discussions about the cost accounting
cycle, manufacturing cost, and cost of
goods sold statement, cost accounting
systems such as Job Order Costing,
Process Costing, ABC Costing, JIT
Costing, and Backflush Costing.
 Course Content
PERIOD TOPIC
Prelim a. Cost Accounting Fundamentals
b. Cost Terms, Concepts and Classifications
Midterm c. Cost Behavior: Analysis and Use
d. Accounting for Cost Flows
Semi-Finals e. Job Order Costing
f. Process Costing
Finals g. CVP Analysis
h. Operation Costing, JIT System, & Backflush Costing
i. ABC Costing and Management
Other Topics Accounting for Materials, Labor and Overhead
Reference Book:
Cost Accounting and Control
2022 Edition

By: Norma D. De Leon, Ellery De

Leon, Guillermo M. De Leon, Jr.
Grading System
Criteria Percentage
Major Examination 40.00
Class Participation
Quizzes 30.00
Recitation 27.00
Attendance 3.00
Grand Total 100.00
Basis = 62% : 38%
Grading System
CLASS RULES:
ATTENDANCE
 DEA = 3 consecutive absences / 8 cumulative absences (or total of
12 hrs.)
 3 late (after 15 mins.) = 1 absence
 Excuse letter shall be signed by parent/guardian or medical
certificate to be formally excused
 Excused attendance is not equivalent to excused quizzes, activities,
and examination
 A designated beadle shall monitor the class attendance.
CLASS RULES:
QUIZ / EXAMINATION
 Quiz shall be conducted at most twice and unannounced : before
and after the chapter
 Receipt or payment for the period shall be presented during
periodical examination
 Permit is only required during final examination
 Use of mobile phones shall be prohibited during tests. All other things
shall be placed under your chairs, except ballpen/pencil, basic
calculator, and scratch paper (when allowed).
CLASS RULES:
CLASSROOM ETIQUETTES
 Use of English language during discussion and recitation is highly
encouraged.
 10 to 15 mins break shall be observed.
 Respect the privacy and individuality of every persons in the classroom
 Maintain proper classroom management
 Avoid actions and noise that will disturb other classes
 No changing of seats. Seating arrangement shall be based on your last
name.
 Use of cellphones while class is going on is prohibited, unless permitted
by the professor or a call is needed to be answered.
 Strictly NO CHEATING
 NO BULLYING
 COST
ACCOUNTING
FUNDAMENTALS
Objectives
At the end of this lesson, the students will be
able to:
1. Understand value chain and its relationship
to cost accounting
2. Be able to compare between financial,
managerial, and cost accounting
3. Distinguish between manufacturing and
merchandising operations
4. Describe the uses of cost data
5. Distinguish between job order costing and
process costing
Modern Cost Accounting
▪ Designed for managers
▪ Major player in improving
management decision making (from
planning new products to evaluating
performances)
▪ Use cost accounting information to
choose strategy, communicate it,
and determine how best to
implement it
Cost Accounting
 Field of accounting that measures, records,
and reports information about costs

Addresses the informational demands of both

financial and managerial accounting by
providing product cost information to:
External Parties – for investment and credit
decisions and for reporting purposes
Internal Parties –for planning, controlling,
decision making and evaluating
performance
Cost Management Framework
Cost Management:
▪ evaluate the importance of quality and
timeliness of products and services sold
to customers
▪ Occurs well before the accounting
system recognizes costs
▪ Makes managers seek ways to reduce
cost
Cost Accounting Information

It increases value to the organization

if it is relevant and can improve
manager’s decisions.
This is commonly used in developing
financial accounting information
What is the goal of cost
accounting?
Assist managers in achieving the
maximum value of the organization

Help measure the effects of decisions

on the value of the organization
What is value chain?
set of activities that transforms raw
resources into the goods and services
end users purchase and consumes
which also includes the treatment
and disposal of any waste generated
by the end users
Role of cost accounting in
the value chain
Provides information across the steps
to help managers evaluate the
efficiency of the steps and its
contribution to final product’s service,
quality, and cost
Value-added activity

these are the activities that

customers perceive as adding utility
to the goods or services purchased

E.g. research and development and

production of the product
What is supply chain and
distribution chain?
These are activities that are outside the
firm but add-up value in the value chain:
Supply Chain - purchasing of resources
and supplies from a supplier
Distribution chain - selling of products to
customers
 Value Chain: Activities and Costs
COMPONENT SAMPLE ACTIVITIES SAMPLE COSTS TRENDS
Research and Creation and development • Research • Lean Mftg.
Development of ideas related to new personnel • Cost-effective
(R&D) products, services, or • Patent designs
processes Applications
• Laboratory
facilities
Product Design The detailed development • Design center • Design for
and engineering of products, • Engineering Manufacturability
services, or processes facilities used to (DFM)
develop and test • ABC Costing
prototypes
Purchasing Acquisition of goods and • Purchasing • Performance
services needed to produce department Measure
a good or service personnel • Benchmarking
• Vendor
certification
 Value Chain: Activities and Costs
COMPONENT SAMPLE ACTIVITIES SAMPLE COSTS TRENDS
Production Collection and assembly of • Machines and • Job Order
resources to produce a equipment • Process
product or deliver a service • Factory personnel • JIT

Marketing Process of informing • Advertising • Customer Relations

and Sales potential customers about • Focus group travel Management
the attributes of products or • Product placement (CMR)
services that leads to their
sale
Distribution Process for delivering • Trucks • Outsourcing
products or services to • Fuel
customers • Website creation
 Value Chain: Activities and Costs
COMPONENT SAMPLE ACTIVITIES SAMPLE COSTS TREND
Customer Support activities provided • Call Center • Total Quality
Service to customers for a product personnel Management
or service • Returns and (TQM)
Processing
• Warranty Repairs
Accounting Systems
Related Accounting Systems:
Financial- concentrates on the
preparation and provision of financial
statements
Managerial- concerned with providing
information to parties inside an
organization
Cost – intersection between the two
 Financial vs. Managerial
COMPONENT FINANCIAL MANAGERIAL
Purpose of Communicate Help mangers make
Information organization’s financial decisions to fulfill an
position to investors, organization’s goals
banks, regulators, and
other outside parties
Primary Users External Internal
✓ Suppliers ✓ Managers
✓ Investors/ Stockholders ✓ Department
✓ Creditors Heads
✓ Government ✓ Owners
 Financial vs. Managerial
COMPONENT FINANCIAL MANAGERIAL
Focus and Emphasis Past-oriented (reports on Future-oriented (budget for
2010 performance 2011 prepared in 2010)
prepared in 2011)
Primary Whole (Aggregated) Parts (segmented)
Organizational Focus
Information MUST BE: MAY BE:
Characteristics ✓ Historical ✓ Current or Forecasted
✓ Quantitative ✓ Quantitative or Qualitative
✓ Monetary ✓ Monetary or Non-monetary
✓ Verifiable ✓ Timely
✓ Reasonably Estimated, at
minimum
 Financial vs. Managerial
COMPONENT FINANCIAL MANAGERIAL
Overriding Criteria ✓ GAAP (Generally ✓ Usefulness (Situational
Accepted Accounting Relevance)
Principles ✓ Cost-benefit analysis
✓ Consistency ✓ Flexibility
✓ Verifiability

Time Span and Type Annual and Quarterly Varies from hourly
of Reports financial reports, information up 15 to 20
primarily on the years, with financial and
company as a whole nonfinancial reports on
products, departments,
territories, and strategies
 Financial vs. Managerial
COMPONENT FINANCIAL MANAGERIAL
Behavior Primarily reports Designed to influence the
Implications economic events but behavior of managers and
also influence behavior other employees
because manager’s
compensation is often
based on reported
financial results
Record Keeping Formal Formal and Informal
Cost Accounting
Uses of Cost Accounting Data

1. Determining Product Cost

2. Planning and Control
3. Performance Evaluation
Uses of Cost Accounting Data
1. Determining Product Cost
➢Helps management in gathering the
data needed to determine product
costs
➢Calculate both unit cost and total cost
Uses of Cost Accounting Data
Usefulness of Unit Cost Information
✓Determining the Selling Price
✓Meeting Competition
✓Bidding Contracts
✓Analyzing Profitability
Uses of Cost Accounting Data
2. Planning and Control

Planning
✓Process of establishing firm’s objectives
and goals
✓Provides coordination among
departments
✓Helps develop plans
Uses of Cost Accounting Data
Components of Planning
Strategic Planning – concerned with setting
long range goals and objectives

Tactical Planning – concerned with plans for a

shorter range (or time period)

Operations Planning – relates to day-to-day

implementation of tactical plans.
Uses of Cost Accounting Data
Control
✓The process of monitoring the
company’s operations and determining
whether the objectives identified in the
planning process are being
accomplished
Uses of Cost Accounting Data
3. Performance Evaluation
Managers can evaluate the performance
of the operations (if gaining or losing
money) or the personnel (if following in the
standards or over(under) budget)
Outsiders may decide whether they could
trust their money to the company as
investment
Merchandising vs. Manufacturing
Merchandising
Involves only by buying the goods from a
manufacturing company
Cost of Goods Sold (COGS) computation:
Merchandising vs. Manufacturing
MERCHANDISING
SFP Transactions SCI
CASH

PURCHASES

Plus: Mdse. Beginning

Inventory

Mdse. Unsold Sold

Cost of Goods Available Cost of Goods
Inventory for Sale (CGAFS) Sold (COGS)
(MI)
Merchandising vs. Manufacturing
Manufacturing
Involves the conversion of raw materials into
finished goods (salable)
▪ Purchase and use of raw materials
▪ Application of labor
▪ Incurrence of various factory expenses
 Merchandising vs. Manufacturing
MANUFACTURING
SFP Transactions SCI
Purchase of
MAT. LABOR FOH

Materials Unused
STORAGE
Inventory
Used

Work In Process Unfinished

PRODUCTION PROCESS /
(WIP) Inventory FACTORY
Produced

Finished Unsold Sold

FG STOCKROOM Cost of Goods
Goods (FG) Sold (COGS)
Inventory
Merchandising vs. Manufacturing
Manufacturing
Cost of Goods Sold (COGS) computation:
Product-Costing Systems

Basic Systems:
1. Job Order Costing
2. Process Costing
3. Operation Costing
Product-Costing Systems
COMPONENT JOB ORDER PROCESS
Product ✓ Unique ✓ Similar / Identical
Characteristics ✓ Customer-specific ✓ Uniform
✓ Special Order ✓ Homogeneous
✓ Heterogeneous
✓ Batches / Set –
identical product
Process Worked for a time Continuous, series of
period similar process

Accumulation of All manufacturing Manufacturing costs

Cost costs assigned to the of all the processing
specific job or batch departments or work
center
Product-Costing Systems
COMPONENT JOB ORDER PROCESS
Measurement Cost of Each Completed By Department Per Time
Job period
(e.g. monthly, weekly)
Recording General Ledger: General Ledger:
✓ Work-in-Process ✓ Work-in-Process
Inventory Control Inventory for each
Department
Subsidiary Ledger:
✓ For each of the Job
Unit Cost
Computation Total Mfg. Cost of the Job Each Department’s Costs
No. of Completed Units Equivalent Unit of
Production
Product-Costing Systems
COMPONENT JOB ORDER PROCESS

Supporting Job Cost Sheet Cost of Production

Document (WIP) Report
Record Keeping - More Detailed - Less Detailed
- Higher Cost - Lower Cost
Example ✓ Accounting / Audit ✓ Petroleum
Industry Firms (engagements) ✓ Paint
✓ Architectural
(contracts)
✓ Universities
(research project)
✓ Furniture Manufacturer
(Batch of Chairs, etc)
Product-Costing Systems
Operation Costing
a hybrid costing system often used in repetitive
manufacturing where finished products have
common, as well as distinguishing characteristics
Examples:
Clothing – basic suits can be assembled in one
operation, but can be moved to another operation for
additional deluxe lining
Television – produces basic chassis and component
system, but varies to remote control and cabinetry
 Organizational Environment
TITLE Major Responsibilities Example Activities
Chief Financial • Manages entire finance and • Signs off on financial
Officer (CFO) accounting function statements
• Determines policy on debt
versus equity financing

Treasurer • Manages liquid assets • Determines where to invest

• Conducts business with banks cash balances
and other financial institutions • Obtains line of credit
• Oversees public issued of
stock and debt

Controller • Plans and designs information • Determines cost accounting

and incentive systems policies
• Maintains the accounting
records
 Organizational Environment
TITLE Major Responsibilities Example Activities
Internal Auditor • Ensures compliance with • Ensures that procurement
laws, regulations and rules are followed
company policies and • Recommends policies and
procedures procedures to reduce
• Provides consulting and inventory losses
auditing services within the
firm
Cost • Records, measures, evaluates • Evaluates costs of products
Accountant costs of estimates and and processes
analyzes costs • Recommends cost effective
• Works with financial and methods to distribute
operational manager to products
provide relevant information
for decisions
Code of Conduct
Standards of Ethical Conduct for Practitioners
of Management Accounting and Financial
Management
(Institute of Management Accountants)
1. Competence
2. Confidentiality
3. Integrity
4. Objectivity
-END-