Flores, M.O.

, 2016, Integrated Cost Accounting

(Principles and Application)
• VISION, MISSION, GOALS, CORE VALUES
• RED CODE (RESPECT, EXCELLENCE &
DISCIPLINE)
• CLASSROOM POLICIES
– Be respectful all the time.
– Be excellent all the time. Do the right things and do it
right.
– Be disciplined all the time.
Attendance.Cleanliness.Obedience to CVSC policies
• No special quizzes
• Special Exam will only be allowed if there is an
excuse letter duly signed by the
parents/guardian with the medical certificate if
absent due to medical reason.
• Wear your prescribed uniform otherwise you will
not be allowed to attend the class except for
meritorious cases.
• No cheating or any form of deceptions allowed
otherwise it will immediately invalidate the
quiz/exam.
• Mobile phones should be turned off/put in silent
mode during class time or examinations.
• Strictly no sharing of calculators inside the
classroom.
• Quizzes- 30%
• Class Participation- 20%
• Projects/Research- 10%
• Exams- 40%
• PRELIM & MIDTERM- Quizzes/Recitation/Written
Exams
• FINAL- Quizzes/Recitation/Cost Accounting
Integration as Final Exam
• Railborn, C.A., Kinney, M.R., 2013, Cost
Accounting: Foundations of Evolution
• Flores, M.O., 2016, Integrated Cost
Accounting (Principles and Application)
• Guerrero, P. 2014-2015 Edition, Cost Accounting:
Procedures and Procedural
• Accounting- language of business; process
of analyzing, recording, classifying,
summarizing and reporting financial
transactions and events and interpreting
the results thereof.
– Financial accounting
– Management Accounting
– Cost Accounting
– Financial accounting-accumulation & preparation
of financial data for external users compliant with
PFRS
– Management Accounting-accumulating,
summarizing, and interpreting economic data
about the business for the management and other
internal users.
– Cost Accounting-branch of financial accounting;
systematic accounting of the determination and
accumulation of a cost of a product or activity.
• Costing-determine the cost of products,
activities or services; collection and
classification of costs
• Cost Control-analysis of the costs
• Budgeting-establishment of a
comprehensive plan of operations
expressed in financial terms.
• To ascertain the cost.
• To determine the selling price
• To control cost
• To facilitate the preparation of financial
statements and other reports
• To provide information for decision-making
• Nature
• Objective
• Primary Users
• Accounting system
• Accounting principles
• Scope of transactions
• Unit of measurement
• Time period
• Scope
• Function/purpose
• Primary Users

• Scope
• Function/purpose
• Primary Users
 Cost Accounting
System

Costing Cost Cost Flow Inventory

Costing Method
Technique Accumulation Assumption System

Actual or Absorption or Specific

Job Order Perpetual
historical full costing Identification

Variable or
Standard Process FIFO Periodic
direct costing

Normal Uniform Costing Backflush LIFO

Activity-based
Throughput Average
costing
 Actual Standard Normal
Direct ACTUAL STANDARD ACTUAL
Materials (Actual Price X (Standard Price X Standard (Actual Price X
Actual Qty of Qty of input allowed for Actual Qty of input
input used) actual output achieved) used)

Direct ACTUAL STANDARD ACTUAL

Labor (Actual Price X (Standard Price X Standard (Actual Price X
Actual Qty of Qty of input allowed for Actual Qty of input
input used) actual output achieved) used)
Overhead ACTUAL STANDARD BUDGETED
(Actual OH rate (Standard OH rate X (Predetermined OH
X Actual Qty of Standard Qty of cost rate X Actual Qty
cost allocation allocation base allowed for cost of allocation
base used) actual output achieved) base used)
Techniques Description
Absorption or full costing All manufacturing costs (fixed or variable) are
charged to products, activities or services.
Variable or direct costing All variable costs are product costs. Fixed costs
or marginal costing are period costs.
Uniform costing Used by several undertakings or organization of
similar costing principles, methods or practices;
used to promote operating efficiency by
comparing inter-unit or inter-firm performance
data
Activity-based costing Assumes that cost objects consume activities;
(ABC) assigns overhead costs to the activities that are
the real cause of overhead; assigns costs only to
the product that demands such activities
Systems Description
Job order costing Based on customer orders; 3 variants are batch
costing, contract or terminal costing and multiple
or composite costing
Process costing Based on production of homogenous or very
similar products in large volume; costs are
allocated to the proper functions or departments
within the process; 3 variants are unit or single
output costing, operating service costing and
operation costing
Backflush costing Focuses on the output and works backward to
allocate the product costs between CGS and
inventories; developed for just-in-time operations
Throughput costing or Considers only direct materials as true variable
super variable costing cost and other remaining costs are treated as
period costs; not widely used
Inventory Cost Flow Description
Specific Identification Actual costs of the item is determined and
recognized as CGS when sold; used to high value
and low sales volume products
First-in, First-out (FIFO) First purchased goods are first to be sold; follows
the normal actual movement of inventories
Last-in, First-out (LIFO) Last item purchased are sold first; developed
mainly for tax purposes to defer income tax
payments; NOT PERMITTED IN THE PHILIPPINES
Average method Used when same cost is applied to all units of
inventory; weighted-average unit cost is
determined by dividing the CGAS by the number
of units available for sale; unsold units on hand
multiplied by the weighted average cost comprise
the inventory
System Description

Perpetual system Uses “inventory” account to record the

purchases, sales and returns of goods; such
account will be updated immediately after each
transaction based on the stock ledger card

Period system Uses “purchases” account to record the

purchases, sales and returns of goods;
“inventory” account is updated periodically,
usually at end of the accounting period after a
physical count; do not use stock ledger card
Terms Meaning
Cost Measurement of the amount of resources use in
producing a product or rendering a service
Cost object Anything for which costs are measured separately

Cost center Represents a location, division, segment or area of

activity for which costs may be ascertained for
purposes of controlling costs
Cost unit Unit of product, service, or activity for which cost
may be ascertained or expressed
Cost Process of grouping costs according to their common
classification characteristics or features; performed to obtain
proper matching of costs and benefits on the IS
1. By nature of expense
Materials Integral part of a finished product; cost of materials of any
Costs nature used to produce a product
Labor Costs Amount paid for salaries and wages of the employees for
their services
Overhead Costs other than materials and labor such as utilities, rent
Costs and etc. related to the production of the product

2. By traceability or in relation to the product

Direct Costs Costs that can be easily and conveniently traced to the
particular object; include direct materials and direct labor
Indirect Costs Costs that cannot be easily and conveniently traced to the
particular cost object; include indirect materials, indirect
labor and factory overhead
3. By function or activities
Production or manufacturing
costs
Selling costs
Distribution costs
Research and Development
(R&D) Costs
Administrative Costs
General Costs
Costs incurred to produce a product; 3 types are direct
materials, direct labor and factory overhead
Represent the total cost of marketing, advertising and
selling a product; not necessary part of the
manufacturing process
Incurred in moving the finished products from the point
of production to the point of consumption
Costs incurred in researching of new scientific or
technical knowledge in developing a new product or
service, process or technique or improvement
Costs relate to the general support and administration of
the business and other costs incurred in controlling and
directing an organization as a whole
Costs relate to the general operations of the business
that are not related to production, manufacturing and
other costs above.
4. By variability or behavior
Fixed Costs Costs that do not vary with the change in the volume of
production or activity; remain throughout a relevant range
Variable Costs Vary in proportion to the production level or output; 2 parts
are variable direct costs and variable indirect costs or VOH
Mixed Costs Sometimes referred to as semi-fixed or semi-variable costs;
contain both fixed and variable elements

5. By controllability
Controllable Subject to the discretion of the manager or can be
Costs controlled to keep within pre-defined limits
Noncontrollable Costs outside the control of the manager or cannot be
costs influenced at a given level of managerial supervision
6. By normality
Normal Costs Incurred in normal situation at a given level of output in the
conditions in which the level of output is achieved
Abnormal Costs Do not occur in normal situation of production process; irregular or
unusual cost
7. By time period

Historical Actual costs of acquiring an asset or producing product or services

Costs
Predetermined Computed in advance of production on the basis of a specification of
Costs all factors affecting cost; either standard or estimated
Standard Predetermined cost established by management at the beginning of
Costs the accounting period to control costs
Estimated Developed before actual operations or customer orders; less accurate
Costs than standard cost; in reference to activity level of the plant
8. By purpose of management decision making
Marginal costs Total of direct materials, direct labor and variable overhead; marginal cost
per unit is the change in the amount at any given volume of output

Differential costs Change in cost due to change in activity level

Opportunity Value of the alternatives forgone by adopting or pursuing particular strategy
costs or action
Replacement Cost of an asset in the current market that will have to be paid to replace an
costs existing asset with a similar asset
Relevant costs Costs relevant for different alternatives
Imputed costs Hypothetical or notional costs; not involving cash outlay; computed only for
decision making

Sunk costs Historical costs incurred in the past and are not relevant to the decision-
making problem considered
Avoidable costs Should not have been incurred under given conditions of performance
efficiency
Unavoidable Inescapable costs that are essentially to be incurred , within the limits or
costs norms provided for; must be incurred under a program or restriction
 • Easily identified
Direct
with specific
Materials product or job
Prime costs
• Labor of persons
Direct
involved in the
Labor production
Conversion costs
• Indirect costs
Factory
involved in the
overhead production
 TOTAL COSTS

Product Costs Period Costs

General &
Manufacturin Research &
Selling Distribution Administrativ
g Costs Development
e

Direct Indirect

Direct Factory
Direct Labor
Materials Overhead

Indirect Indirect Other

Materials Labor Overhead
3 Types
Raw materials inventory Used to account for direct and indirect materials
purchased from suppliers that will be used in the
production process; reflects the cost of the materials and
freight-in and other direct costs
Work in process Pertains costs of uncompleted job orders or process at
inventory the end of the period; reflects the cost of materials,
labor, and overhead incurred in relation to incomplete
and unfinished product; also known as “goods in process
inventory”
Finished goods inventory Used to accumulate the manufacturing costs incurred
relating to a finished product that is ready for sale
• “profit or loss statement”; “statement of
operations”; “statement of income”
• Includes profit or loss and other
comprehensive income which results from
transactions or events other than the
transactions of the owners
• 2 formats: Single Step Income Statement;
Multiple-step Income Statement
 ABC Services Corporation
Income Statement
For the year ended December 31, 2018
Revenues and gains
Service revenues P xxx
Non-operating revenues* xxx P xxx
Expenses and losses
Cost of revenues* xxx
Operating expenses* xxx
Non-operating expenses* xxx
Income tax xxx xxx
Net Income P xxx
 ABC Services Corporation
Income Statement
For the year ended December 31, 2018

Service revenues P xxx

Cost of revenues* xxx
Gross margin xxx
Operating expenses xxx
Operating income xxx
Non-operating revenues (expenses) xxx
Income before taxes xxx
Income tax xxx
Net income(loss) P xxx
 ABC Services Corporation
Income Statement
For the year ended December 31, 2018
Sales P xxx
Cost of goods sold
Merchandise inventory, Jan. 1 P xxx
Add: Net purchase P xxx
Freight in xxx xxx
Total goods available for sale xxx
Less: Merchandise inventory, Dec. 31 xxx xxx
Gross margin xxx
Operating expenses xxx
Operating income xxx
Non-operating income xxx
Income before taxes xxx
Income tax xxx
Net Income/Loss xxx
 ABC Services Corporation
Income Statement
For the year ended December 31, 2018
Sales P xxx
Cost of goods sold
Finished goods inventory, Jan. 1 P xxx
Add: Cost of goods manufactured xxx
Total goods available for sale xxx
Less: Finished goods inventory, Dec. 31 xxx xxx
Gross margin xxx
Operating expenses xxx
Operating income xxx
Non-operating income xxx
Income before taxes xxx
Income tax xxx
Net Income/Loss xxx
 ABC Services Corporation
Statement of Cost of Goods Manufactured
For the year ended December 31, 2018
Direct materials used
Raw materials inventory, Jan. 1 P xxx
Add: Net raw materials purchases P xxx
Freight in xxx xxx
Total materials available for use xxx
Less: Indirect materials used P xxx
Raw materials inventory, Dec. 31 xxx xxx P xxx
Direct labor xxx
Factory overhead
Indirect materials P xxx
Indirect labor xxx
Depreciation-factory building xxx
Depreciation-factory equipment xxx
Insurance-factory xxx
Property taxes-insurance xxx
Other manufacturing costs xxx xxx
Total manufacturing costs xxx
Add: Work in process inventory, Jan. 1 xxx
Total goods placed into process xxx
Less: Work in process inventory, Dec. 31 xxx
Total cost of goods manufactured xxx
 Procurement Production Warehouse Sales

• Purchase • Incurrence • Transfer of • Delivery of

of raw of labor finished finished
materials and products to products to
and overhead the the
supplies (conversion warehouse customers
from costs) to • Finished • Cost of
vendors produce a goods Goods Sold
• Raw finished inventory • Income
materials product • Balance statement
inventory • Work in Sheet
• Balance process
sheet inventory
• Balance
sheet

The conversion process requires cost accounting since costs incurred

should be assigned to finished and unfinished inventories, and also to
sold and unsold inventories at period end.