INTRODUCTION TO COST ACCOUNTING

JACQUELINE LESLIE S. IGNACIO, CPA, REB, REA, MBA

 ACCOUNTING INFORMATION SYSTEM (AIS)

 SYSTEM – is a set of interrelated parts that

performs one or more processes to accomplish
specific objectives.
 AIS – is one that consists of interrelated manual
and computer parts and uses processes such as
collecting, recording, summarizing, analyzing and
managing data to provide information to users.
- it has objectives, interrelated processes and
outputs.
- it is divided into subsystems, such as:
- Financial accounting system
- Cost management system
 Relationship of Financial, Management, and
Cost Accounting
Product
Costs

FINANCIAL COST MANAGEMENT

ACCOUNTING ACCOUNTING ACCOUNTING

These systems are not independent of each other (they

should be integrated and have linked databases - output of
1 system can be used as input of the other system.)
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 Types of Accounting
Financial Management
 Meet external  Meet internal
information needs information needs
 Investment decisions
 Does not have to
 Stewardship
comply with GAAP
evaluation
 Regulatory measures

 Comply with GAAP

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 Financial versus Managerial
Financial Managerial
 External focus  Internal focus

 Whole organization  Segments or divisions

 Historical  Current/projected

 Quantitative  Quantitative/qualitative

 Monetary  Monetary and nonmonetary

 Verifiable  Timely/reasonable estimate

 Benefits exceed costs

 GAAP
 Formal and informal
 Formal recordkeeping recordkeeping
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 COST ACCOUNTING INFORMATION SYSTEM

 Provides the detailed cost information that

management needs to control current
operations and plan for the future.
 Planning and control (meeting competition,
analyzing profitability, reduction of costs,
improvements of quality)
 Decision-making (Pricing decisions,
inventory valuation, contract bidding,
choosing among alternatives, routine and
strategic decisions)
MANAGEMENT FUNCTIONS
 Planning

 Organizing

 Controlling

 Directing

WHICH ALL INCLUDE:

 Making decisions
 Giving orders
 Establishing policies
 Providing work and rewards
 Hiring people to carry out policies
 Budgeting and Controlling of Costs

 Influences individual and group behavior at all stages of the

management process

 BUDGET – is the quantified, written expression of

management’s plans.
 Should be created through the participation of all levels of
management.
 Promotes coordination of personnel, clarification of policies,
crystallization of plans.

 RESPONSIBILITY ACCOUNTING – each manager’s

responsibilities should be limited to the costs and revenues
that are controllable by the manager, and performance is
generally measured by comparing actual costs and
revenues with the budget.
 Value Chain
 A set of value-adding functions
and processes that converts inputs
into products or services
 Research and  Marketing
Development  Distribution
 Product Design  Customer Service
 Supply
 Production

Communicate strategy to all members of the value chain.

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 Components of the Value Chain

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 What is our role?

Cost accountants
provide the
information

Managers
formulate the strategy
 The Role of Cost Accounting
 The collection, presentation and analysis of
information regarding costs and benefits helps
management accomplish the following tasks:
1. Creating and executing plans and budgets.
2. Establishing costing methods that permit control
of activities, reduction of costs and
improvement of quality.
3. Controlling physical qualities of inventory and
determining the cost of each product or service
produced for the purpose of pricing and for
evaluating the performance of a product,
department or division
 Function of Cost Accounting
 Two functional groups:
 Line function – directly involve in achieving the
company’s objectives.
- makes decisions

 Staff function - indirectly involve in achieving

the company’s objectives.
- gives advice and performs technical
functions
 Function of Cost Accounting

 Cost accounting is a staff

function under the leadership
of a controller
 ETHICS – A KEY CONCEPT

Ethics

Beliefs that
distinguish right Accepted standards
from wrong of good and bad
behavior
 GUIDELINES FOR ETHICAL
DECISION-MAKING
 Identify ethical  Analyze options  Make ethical
concerns decision

Use personal ethics to Consider all good and Choose best option
recognize ethical bad consequences. after weighing all
concern. consequences.
 BUSINESS ETHICS

1. Avoid small ethical lapses.

Sound
Sound
2. Focus on your long-term
Principles
Principles that
that reputation.
form
form the
the
foundation 3. You may expect to suffer
foundation for
for adverse personal
ethical
ethical consequences for holding
behavior
behavior to an ethical position.
 Professional Ethics
 Earnings management—deliberate accounting
adjustments to “hit” profit targets
 Often adjustments involve cost accounting
 Product costs
 Inventory valuations

 Stretching legitimate accounting techniques

 Outright fraud

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 Potential Ethical Issues
 Earnings management
 Low cost production at any cost
 Whistle-blower retaliation
 Fixing prices
 Bribery and other corruption
 Hiding managerial acts

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.
 Ethics and Management Accounting

 Standards of Ethical Conduct for

Management Accountants
 Competence
 Confidentiality
 Integrity
 Credibility

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible
website, in whole or in part.