Who’s Presenting?

Presenter 1: Presenter 2:
HELENIYA RENUKA DHURGA DEWI
SARAVANAN ANTHONY KUMAREN
(02DAT20F1052) (02DAT20F1029)

MANAGE PRESENTERS
INTRODUCTIO
CHAPTER 1
N •COST ACCOUNTING PLAYS AN IMPORTANT ROLE
IN TODAY’S COMPETITIVE WORLD OF BUSINESS.
•BUSINESS SECTOR IS VERY IMPORTANT TO
ENSURE THAT COMPANIES HAVE A SYSTEMATIC
COST MANAGEMENT SYSTEM.
•IMPORTANT BRANCH OF ACCOUNTING DEALING
WITH THE CLASSIFICATION , RECORDING
,ALLOCOTION, SUMMARIZATION AND REPORTING
OF CURRENT AND PROSPECTIVE COSTS.
INTRODUCTIO
CHAPTER 2
N •ALMOST ANY MANUFACTURING ORGANIZATION
NEEDS TO KNOW THE COSTS THAT WILL BE
INCURRED AT DIFFERENT LEVELS OF
PRODUCTION.
•IMPORTANT ASPECT OF COST PLANNING AND
CONTROL IS AN UNDERSTANDING OF COST
BEHAVIOUR PATTERNS AND INFLUENCES
•BASIC BEHAVIOUR PATTERNS OF COSTS MAY BE
DESCRIBED AS EITHER VARIABLE OR FIXED.
1
DEFINE COST
ACCOUNTING
 CHARTERED INSTITUTE
ACCOUNTANTS(CIMA),LONDON:
OF MANAGEMENT

-The establishment of budgets, standard costs and actual

costs of operations, processes, activities or products and the
analysis of variances, profitability or the social use of funds.

 CHARLES T.HORNGREN:
-A quantitative method that accumulates, classifies,
summarizes and interprets information for three major
purposes;
i. Operational planning and controlling
ii. Special decision
iii. Product decision

SUB TOPIC Part 1

 THE IMPROTANCE OF COST ACCOUNTING TO

2
1. ACERTAINING COST ANDMANAGEMENT
GUIDING SELLING PRICE FIXATION.
 Cost accounting provides information regarding the cost to make and sell a product
or provide a service.

2. FACILITATING PLANNING.
 Strategic planning
 Operation planning

3. FACILITATING CONTROLLING
 To ensure that the work is done to fulfill the firm’s objectives and plans.

4. PROVIDING INFORMATION FOR SHORT-TERM AND LONG-TERM DECISION-

MAKING. Long term decision-making Short-term decision-making
a) Make or buy a particular components a) Pricing of new products
b) Whether to outsource a particular job b) Development of new products
c) Price for special order c) Development of new products
d) The most profitable product mix d) Dropping existing products.
e) Profits at different levels of e) Dropping existing markets
production

SUB TOPIC Part 2

 DIFFERENCE BETWEEN COST ACCOUNTING AND
3
FINANCIAL ACCOUNTING
COST ACCOUNTING
DEFINITION -classification, recording,
presentation and interpretation
of the cost involve
manufacturing and selling of
product, service and job.
OBJECTIVE - to ascertain and control cost
and maximize efficiency.
- To provide cost information
to the management
FOCUS USERS - reporting to internal uses of
accounting information, such
as manager.
SUB TOPIC Part 3
FINANCIAL ACCOUNTING
-analysis, classification and
recording financial transaction
and ascertainment of how
transaction effect performance
and financial position of the
business.
- To prepare a profit and loss
and balance sheet for
reporting to outside parties
- Reporting to external of
accounting information,
including investor, government
regulators, shareholders,
credits, bank, suppliers.
 DIFFERENCE BETWEEN COST ACCOUNTING AND

3
FINANCIAL ACCOUNTING
COST ACCOUNTING FINANCIAL ACCOUNTING
TIME - focus on present and future - Report on the past to draw up
DIMENSION financial statement
FORMAT - No specific format - The financial statement are
- Management decide prepared in the format
internally which format most prescribed by regulatory body
suits the users.

REPORT - Data and statement are - Financial statement are

FRECUENCY prepared whenever needed. prepared for a definite period
of time, usually a year.
ACCOUNTING - Is not based on double entry - Follow the double entry
METHOD system. system.
REGULATORY - No rules and regulation to - Must follow the regulatory
EQUIPMENT prepare report system.

SUB TOPIC Part 3

 DIFFERENCE BETWEEN COST ACCOUNTING AND

3
FINANCIAL ACCOUNTING
COST ACCOUNTING FINANCIAL ACCOUNTING
SEGMENTATION - Cost accounting report focus - Financial accounting report
on small part of the describe the whole of the
organization. business.
UNIT OF - May apply monetary or non - It provides information in terms
MEASUREMENT monetary units. of monetary units only.
REPORTS - Generates special reports and - Generates financial statement.
analysis as required by (income statement and balance
management. sheet), cash flow statement, fund
flow statement, and financial
statement analysis such as ratio
analysis

SUB TOPIC Part 3

 COST

4
 A quantitative unit of output or service to which costs can be

UNIT
related.

COST
 A location, function or item of equipment in respect of which

CENTRE
costs may be generated and related to cost units for control
purposes.

COST OBJECT
 A term used primarily in cost accounting to describe something to
which costs  are assigned. Common examples of cost objects are: product
lines, geographic territories, customers, departments or anything else for
which management would like to quantify cost..

CONVERSION
 used as a measure to gauge the efficiencies in production

COST
processes but take into account the overhead expenses left out of
prime cost calculations.

SUB TOPIC Part 4

 OPPORTUNITY COSTS

5
 Opportunity costs represent the potential benefits an individual, investor, or
business misses out on when choosing one alternative over another.

INCREMENTAL COSTS
 Incremental cost is the total cost incurred due to an additional unit of
product being produced. Incremental cost is calculated by analyzing the
additional expenses involved in the production process, such as raw
materials, for one additional unit of production. 

REPLACEMENT COSTS
 Replacement cost is a term referring to the amount of money a business
must currently spend to replace an essential asset like a real estate
property, an investment security, a lien, or another item, with one of the
same or higher value

SUB TOPIC Part 5

 SUNK COST

3
 Refers to money that has already been spent and cannot be recovered. The
axiom that one has to "spend money to make money" is reflected in the
phenomenon of the sunk cost.

EXPLAIN ACCUMULATION AND ASSIGNMENT OF

COSTS FOR DIFFERENT FUNCTIONS
 Cost accumulation involves the use of a formal cost accounting system to collect
cost information. Management can make more informed decisions about the
operations of a business
 systems fall into two main categories, which are Job Cost System and Process
System.
 job cost system accumulates materials, labor, and overhead costs about individual
jobs.
 process system accumulates costs by cost center and then assigns average costs
to products.
 Cost assignment is the allocation of costs to the activities or objects that triggered
the incurrence of the costs
 Example of a Cost Assignment :A university operates its own maintenance
department; the cost of the department is assigned to the various other
departments

SUB TOPIC Part 3

 EXPLAIN COST ACCUMULATION FOR THE PURPOSE OF

3
STOCK EVALUATION AND PROFIT REPORTING
a) Product cost:
 Are costs identified with goods produced .
 are initially identified as part of the inventory, and include all cost that are
involved in manufacturing a product
 direct materials are transformed into stable form with the help of direct
labour and production overhead.
 All these costs are products costs because they are allocated to inventory
until the goods are sold.
 All these elements of product costs are accumulated as direct materials,
direct wages, direct expenses, production overheads
b) Period cost:
 are costs that are deducted as expenses during the current period without
ever having been regarded as a part of inventory.
 Also called non-manufacturing costs , and include all costs that are not part
of product costs.
 Example of period costs are salaries of sales personal, depreciation of office
equipment, advertising expenses and salaries of top management

SUB TOPIC Part 3

 DESCRIBE COST ACCUMULATION FOR THE

3
PURPOSE OF DECISION MAKING BY USING HIGH-
a) Fixed cost: LOW METHOD:
 are those costs that remain constant at all levels of output and would accrue even if no output
 costs that remain uncharged when production activity changes over a certain relevant range
 total fixed costs do not increase as activity or number of units increases
 example of fixed costs include building rental, building insurance, depreciation and director’s
salary
 such might include interest payments on the purchase of plant and equipment , rent ,
property taxes , and executive salaries.

Activity/output Fixed cost per unit (RM) Total fixed cost (RM)
1 2000 2000
5 400 2000
10 200 2000
20 100 2000
40 50 2000

SUB TOPIC Part 3

 DIFFERENCE BETWEEN COST ACCOUNTING AND

3
FINANCIAL ACCOUNTING
a) Variable cost:
 Cost that change in direct proportion with production activity.
 Variable cost change proportionately to the level of output.
 Total variable costs increase as activity or number of units increase.
 There is no activity (level of activity is zero),
 The variable cost would equal to zero
 Relevant to decision -making.
 Variable costs are directly affected by the decision.
 Example of variable costs include direct materials, direct wages, and direct expenses.
 A key variable cost is the cost of materials.
Activity/output Variable cost per unit (RM) Total variable cost (RM)
1 100 100
5 100 500
10 100 1000
20 100 2000
40 100 4000

SUB TOPIC Part 3

 DIFFERENCE BETWEEN COST ACCOUNTING AND

3
FINANCIAL ACCOUNTING
a) Semi Variable cost:
 Are costs that contain both or a combination of variable costs and fixed cost.
 For instance, telephone costs contain a fixed sum as rental for a period , say one month , and
variable cost for metered calls.
Total cost RM’000

Variable cost

Fixed cost

Output/activity

SUB TOPIC Part 3

EXPLAIN COST ACCUMULATION FOR THE PURPOSE

3
OF PLANNING AND CONTROL
a) Controllable cost:
 those costs that can be altered in the short term.
 a cost is considered to be controllable if the decision to incur it resides with one person.
 If the decision instead involves a number of individuals, then a cost is not controllable from
the perspective of any one individual.
 Examples of controllable costs are Advertising ,Bonuses ,Direct materials ,Donations ,Dues
and subscriptions ,Employee compensation ,Office supplies ,Training• The reverse of a
controllable cost is a fixed cost, which can only be altered over a long period of time.•
Examples of fixed costs are rent and insurance.

b) Non-Controllable cost:
 an expense over which a person has no direct control.
 concept most commonly applies to the manager of a department, whose departmental
expenses include several line items which he has no ability to alter.
 Uncontrollable costs can be a concern when a manager is being judged based on
departmental expenses.
 Examples of uncontrollable costs are rent expense, the corporation overhead allocation, the
administrative overhead allocation, and depreciation expense

SUB TOPIC Part 3

Summary / Info Summary / Info Summary / Info
Fact ~ Fact ~ Facts Fact ~ Fact ~ Facts Fact ~ Fact ~ Facts

S UM M
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SRAVANAN ANTHONY, DHURGA DEWI
KUMAREN.
Subject: COST & MANAGEMENT
ACCOUNTING
Teacher: PUAN NOR LAILIHUDA

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