COST ACCOUNTING

1
 Cost
Monetary measure of resources
given up to attain an objective
(such as acquiring a product
or delivering a service)

2
3
 Cost Categories
• Association with cost object
– Direct - traceable to a cost object
– Indirect - not conveniently or
practically traceable to a cost object
• treated as overhead
• allocated

4
 Cost Categories
• Reaction to changes in activity
– Variable
– Fixed
– Mixed
– Step

5
 Total and Unit Cost Behavior
Total Cost Unit Cost

Varies in direct Remains constant

Variable proportion to throughout the
Cost changes in activity relevant range

Fixed Remains constant Varies inversely

Cost throughout with changes in
the relevant range activity throughout
the relevant range

6
 TRUE OR FALSE
1. As unit decreases, total fixed cost increases.
2. As unit increases, variable cost per unit
increases.
3. As unit increases, fixed cost per unit
decreases.
4. As unit decreases, total variable cost
decreases.
5. As unit decreases, fixed cost per unit
decreases.
 Cost Categories
• Classification on the financial statements
– Unexpired – balance sheet assets
– Expired – income statement expenses
– Product – inventoriable costs
• Prime – direct material and direct labor
• Conversion – direct labor and overhead
• Product costs are unexpired before sale
• Product costs are expired when sold
– Period – expensed in period incurred
8
 Product Costs
• Direct material
– Measurable part of a product
• Direct labor
– Labor used to manufacture a product
or perform a service
• Overhead
– Indirect production cost
9
 Period Costs
• Selling and administrative costs
• Distribution costs
– Cost to warehouse, transport, and/or
deliver a product or service
– Major impact on managerial decision
making

10
 SHORT QUIZZER
1. Hourly wages of factory workers
2. Straight-line depreciation of a machine used in
a production
3. Yearly rental of a factory building
4. Glue
5. Flour used to make breads.
6. Monthly salary of an accountant of a
manufacturing company.
7. Freight-out
 Cost Accumulation in a
Manufacturing Company
Materials
Inventory

Work in Process
Inventory Cost of
Goods
Finished Sold
Goods
Income
Inventory
Balance Sheet Statement
HIGH-LOW METHOD
y = a + bX
y is the total cost
a is the total fixed cost
b is the variable cost per unit
X is the cost driver
PROBLEM SOLVING
PROBLEM SOLVING
MULTIPLE CHOICE QUESTION
 JOB ORDER COSTING
Raw Materials Inventory xx
Accounts Payable xx

Work in Process Inventory xx

Raw Materials Inventory xx

Work in Process Inventory xx

Variable Overhead Control xx
Fixed Overhead Control xx
Salaries/Wages Payable xx
 JOB ORDER COSTING

Variable Overhead Control xx

Fixed Overhead Control xx
Utilities Payable xx
Supplies Inventory xx
Accumulated Depreciation xx
Other accounts xx
 JOB ORDER COSTING

Work in Process Inventory xx

Variable Overhead Control xx
Fixed Overhead Control xx

Finished Goods Inventory xx

Work in Process Inventory xx
 JOB ORDER COSTING

Accounts Receivable xx
Matches
Sales xx
revenues
and
Cost of Goods Sold xx expenses on
Finished Goods Inventory xx the income
statement
MULTIPLE CHOICE QUESTION
MULTIPLE CHOICE QUESTION

Job order costs are most useful for:

a) determining the cost of a specific project
b) determining the labor cost involved in
production
c) determining inventory valuation using LIFO
d) estimating overhead costs
MULTIPLE CHOICE QUESTION

An industry that would most likely

use job order costing procedures is:
a) road building
b) fertilizer manufacturing
c) flour milling
d) petroleum refining
e) textile manufacturing
 Allocating Overhead
Actual vs. Normal
Product Cost Actual Cost Normal Cost
System System
Direct Materials Actual Actual

Direct Labor Actual Actual

Overhead Actual Predetermined

Overhead Rate
 Cost Accumulation in a
Manufacturing Company
Materials
Inventory

Work in Process
Inventory Cost of
Goods
Finished Sold
Goods
Income
Inventory
Balance Sheet Statement