ACC 122: Cost Accounting and Control

Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Lesson title: Cost Accounting System Materials:

Lesson Objectives: Textbook, SAS, & calculator
At the end of this module, I should be able to References:
1. Differentiate the cost accounting systems of service and Hansen & Mowen; Cost Accounting &
manufacturing firms and of unique and standardized Control; 2019 Edition
products. Vanderbeck, Edward J.; Principles of
2. Discuss the interrelationship of cost accumulation, cost Cost Accounting; 15th edition
Brewer, Garisson & Noreen;
measurement, and cost assignment.
Introduction to Managerial Accounting;
7th edition

Productivity Tip:
You have your to-do list for the day, but the hardest question is where do you start? Tackle the
hardest task first.

A. LESSON PREVIEW/REVIEW

1) Activity 1 : Introduction/Review (2 mins)

Hello there! Ready for more activities for the day? Don’t worry, this will be fun! ☺ But before that, let’s
just try to see if you still know the previous module. Answer the questions below and check the answer at the
end of this module under the Key to Correction part if you got it right. Ready, get set, go!
a. Cost accounting and financial accounting covers the same users of information.
True ____ or False ____
b. One of the uses of cost accounting is to assess the going concern of the company.
True ____ or False ____

2) Activity 2 (LO1 & LO2): What I Know Chart, part 1 (3 mins)

Alright! Let’s see what you already know, answer the first column (What I know). Leave the third
column (What I Learned) blank at this time.

What I Know Questions What I Learned (Activity 5)

1. What is the cost accounting
system difference of a service and
manufacturing firm?
2. What is the cost accounting
system of a unique and
standardized products?
3. What’s the difference between
cost accumulation, cost
measurement, and cost
assignment?

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

B. MAIN LESSON
1) Activity 3 (LO1 and LO2): Content Notes (13 mins)

Make sure to highlight or underline the important parts!

LO1: Differentiate the cost accounting systems of service and manufacturing firms and of
unique and standardized products.

Cost Accounting Systems (also called product costing system or costing system) is a
framework used by firms to estimate the cost of their products for profitability analysis, inventory
valuation and cost control.

a) Service vs. Manufacturing firms.

Firms Service Firm Manufacturing Firm
Products Intangible Products with the
following characteristics Tangible Products such as
Intangibility a. Homogeneous Products
Inseparability b. Heterogeneous Products
Heterogeneity
Perishability
Costs Various expenses such as rent, Various expenses plus materials,
maintenance, service fee, work in process, finished goods,
utilities, etc. cost of goods sold
Go to page 36 of chapter 2 for additional discussion on product and service cost.

b) Unique vs. standardized products

Unique Standardized
Heterogeneous Products Homogeneous Products
Custom/Individual job Uniform process
Low production volume High production volume
High Product Flexibility Low Product Flexibility
Job-order costing Process costing

In addition, operation costing is a hybrid of job-order and process costing. McDonald’s is

an example of both manufacturing (creation of products in the kitchen) and a service company
(getting of orders in the counter or drive-thru, cleanliness of restrooms, cleanliness of dining
area, etc.)

Go to page 208-212 of chapter 5 in your book for a more detailed discussion.

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 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

To better grasp the costing of a manufacturing firm, take note of the terminologies used and
its inclusion for each kind of cost/expense.

LO2: Discuss the interrelationship of cost accumulation, cost measurement, and cost
assignment

Interrelationship of cost accumulation, cost measurement, and cost assignment

Cost accumulation – the recording of costs in the general ledger. Cost accountant needs to

TOTAL COSTS OF A MANUFACTURING FIRM

MANUFACTURING (PRODUCT) COST NON-MANUFACTURING (PERIOD)

Prime Cost Manufacturing Overhead COST
Indirect
Direct Direct Indirect Indirect Administrative
Manufacturing Selling Expenses
Materials Labor Materials Labor Expenses
Expenses
Conversion Cost
develop source documents that keep track of costs as they occur. A source document
describes a transaction.

Cost measurement – refers to the classification and organization of costs.

Costing Systems:
1) Actual Costing – firms uses the actual cost of all resources used in production to
determine unit cost.
Formula: (Actual direct cost rate x AQ) + (Actual indirect cost rate x AQ)

2) Normal costing – firms apply actual costs of direct materials and direct labor to units
produced while overhead is applied based on a predetermined estimate.
Formula: (Actual direct cost rate x AQ) + (Budgeted indirect cost rate x AQ)

3) Standard Costing - Standard costing is an accounting system used by some

manufacturers to identify the differences or variances between:
• The actual costs of the goods that were produced, and
• The costs that should have occurred for the actual goods produced
Formula: (Budgeted direct cost rate x AQ) + (Budgeted indirect cost rate x AQ)

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 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

NOTE: Direct costs refers to Direct Materials and Direct Labor; Indirect costs refers to
Manufacturing Overhead; Budgeted Indirect cost rate is also referred as predetermined overhead
rate; AQ stands for Actual Quantity

Predetermined OH rate = Estimated Total Manufacturing Overhead

Estimated Total amount of the allocation base

A job-order costing system that uses actual costs for direct materials and direct labor and
estimated costs for overhead is called a normal job-order costing system.

Cost assignment – determines the cost of particular cost objects (such as units)
Cost object – anything that causes you to incur costs. It is often a product or department for which
costs are accumulated or measured.

To illustrate the interrelationship of cost accumulation, cost measurement, and cost

assignment, here’s an example:

Cost is usually assigned/charged to a particular job/product because of its unique feature.

The cost assigned to heterogeneous products vary depending on the specifications of the
product – whether it is more costly on materials, labor, or overhead. Job-order costing system is
being applied in this kind of custom-made products.

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 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Go to page 33 of chapter 2 and pages 212-217 of chapter 5 of your book for additional
discussion regarding cost accounting systems

2) Activity 4: Skill-building Activities (18 mins + 2 mins checking) SCORE: ________________

Let’s try to practice what you have learned! Check your answers against the Key to Corrections
found at the end of this SAS. Write your score on the space provided.

Part I (LO1): Manufacturing vs. Service

Classify the following types of firms as either manufacturing (M) or service (S).
_______1. Bicycle production
_______2. Pharmaceuticals
_______3. Income tax preparation
_______4. Application of artificial nails
_______5. Glue production
_______6. Child care
_______7. SPA and massage
_______8. Plasticware
_______9. Tutorial center
_______10. OB-gyne Clinic

PART II (LO1 & LO2): Characteristics of Production Process, Cost Measurement

ABC Company designs and installs custom lawn and garden irrigation systems for homes and
businesses throughout the state. Each job is different, requiring different materials and labor for installing
the systems. ABC hast the following date for the year:
Estimated Amount
Number of Direct Labor hours 6,720
Direct Labor Cost P 67,200
Overhead Cost P 50,400

Actual Amounts
Number of Direct Labor hours 6,045
Direct Labor Cost P 66,495
Overhead Cost P 50,500
Requirements:
a. Should ABC use process costing or job-order costing? Why?

b. What is the average actual wage rate?

______________ Actual DL incurred ÷ ______________ Actual No. of DL Hrs = ____________

c. If ABC uses a normal costing system and overhead is applied on the basis of direct labor hours,
what is the overhead rate?
Predetermined OH rate = _______ Est. OH cost ÷ ________ Est. Allocation Base ( Est. DL Hrs)
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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Predetermined OH rate = ____________________

d. What is the cost of an installation that take P 3,500 of direct materials and 20 direct labor hours?
Computation Total
Direct Materials - P 3,500
Direct Labor 20 DL Hrs x ______Wage rate P
Overhead 20 DL Hrs x ______ OH rate P
Total Manufacturing Cost P

e. Explain why ABC Company would have difficulty using an actual costing system.

3) Activity 5: What I Know Chart, part 2 (2 mins)

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write your answers in
the “What I Learned” column. Let’s see your improvement!

4) Activity 6 (LO1 & LO2): Check for Understanding (5 mins)

To better test your knowledge on the topic, encircle the best answer below without looking in
your content notes. Be honest at all times. Your teacher will provide you the key answer in this activity.

1. Since overhead costs are indirect costs,

a. they require some process of allocation.
b. they can be easily traced to production.
c. a predetermined overhead rate is not advantageous.
d. they cannot be allocated.

2. Cost allocation is the assignment of ______ costs to one or more products using a reasonable basis.
direct indirect
a. yes yes
b. es no
c. no no
d. no yes

3. An actual cost system differs from a normal cost system in that an actual cost system
a. assigns overhead as it occurs during the manufacturing cycle.
b. assigns overhead at the end of the manufacturing process.
c. does not assign overhead at all.
d. does not use an Overhead Control account.

4. In a normal cost system, which of the following is used?

Actual direct materials Actual direct labor Actual overhead
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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

a. yes no yes
b. yes yes yes
c. yes yes no
d. no yes no

5. Which of the following is not a reason to use predetermined overhead rates?

a. to overcome the problems of assigning overhead to diverse types of products
b. to compensate for fluctuations in monthly overhead costs
c. to provide a means for assigning overhead during the period rather than at the end of the period
d. to smooth out the amount of overhead cost assigned to products when monthly production
activity differs

6. When should process costing techniques be used in assigning costs to products?

a. In situations where standard costing techniques should not be used
b. If the product is composed of mass-produced homogeneous units
c. When production is only partially completed during the accounting period
d. If the product is manufactured on the basis of each order received

7. An industry that would most likely use process costing procedures is:
a. Beverage.
b. Home Construction.
c. Printing.
d. Shipbuilding.

8. Examples of service businesses include:

a. Airlines, architects, and hair stylists.
b. Department stores, poster shops, and wholesalers.
c. Aircraft producers, home builders, and machine tool makers.
d. None of these are correct.

C. LESSON WRAP-UP

1) Activity 7: Thinking about Learning (5 mins)

1. Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just
completed.

2. Think about your Learning

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 2

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

From a rating of 1-10, determine if you have learned all the learning objectives. What is the reason of
your rating?
__________________________________________________________________________________
__________________________________________________________________________________

What part of the module gave you a hard time to comprehend?

__________________________________________________________________________________
__________________________________________________________________________________

Any other questions or concerns you want to raise?

__________________________________________________________________________________
__________________________________________________________________________________

2) Assignment
To enhance your knowledge regarding the topic, answer Exercise 2.11 of chapter 2 in your book. Your
teacher will provide the key answers later on.

FAQs
1. Why can’t manufacturing firms wait until the end of the year to determine overhead costs per unit for the
costing to be more accurate?
Accuracy of costing is important, however, timely unit cost information is also needed throughout the
year, both for interim financial statement and to help managers make decisions such as pricing. Waiting until
the end to determine overhead costs per unit is unacceptable.

2. What are the allocation base used in computation of pre-determined overhead rate aside from direct labor
hours?
Other allocation base are number of employees, machine-hours, direct labor-hours, square footage,
and electricity usage.

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