COST ACCOUNTING

AND CONTROL
Jaime D.
Sebastian,CPA
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CHAPTER 1
COST - CONCEPTS
AND CLASSIFICATION
Cost is defined as an exchange price which is
identifiable and measurable made to secure
benefit.

Cost is the cash or cash equivalent value

sacrificed for goods and services that is
expected to bring future benefits to the
organization.

Cost accounting is the process of accumulating,

measuring, analyzing, interpreting and reporting
Continuation -
introduction…
cost information for every activity performed in
producing and selling goods and services that is
useful to the internal and external stakeholders
of a business entity.
Objectives of cost
accounting
Cost accounting will help management
accomplish the following objectives:

1. Planning and budgeting for operations

2. Controlling of operations and performance
evaluation
3. Determining the product cost to
manufacture, cost to sell, and pricing
purposes
4. Determining profitability
5. Decision making
Classifications of costs.
I. Cost in relation to product

A. Manufacturing costs or Product costs

1. Under Normal cost system

1.a Direct materials

1.b Direct labor

1.c Factory Overhead Applied

continuation...
Under Normal cost system, the actual
incurrence of indirect materials, indirect labor
and other production costs (or factory costs) are
recorded in Factory Overhead- Control.

Product costs are classified into two:

1. Prime Cost = Direct materials+ Direct labor

2. Converion cost= Direct labor+ FOH
continuation...
2. Under Actual cost system

a. Materials

b. Labor

c. Factory Overhead

B. Period Costs or Non-Manufacturing Costs

1. General or Administrative expenses

2. Selling or Marketing expenses
Continuation ....
II. Cost in relation to volume of production

1. Variable costs
2. Fixed costs
3. Semi-variable or semi-fixed costs

III. Cost in relation to types of Inventory

4. Materials inventory
5. Work-in-process inventory
6. Finished goods inventory
continuation...
IV, Cost in relation to traceability to cost
objective.

1. Direct costs
2. Indirect costs

V. Cost in relation to their nature as common or

joint.

3. Common costs
4. Joint costs
continuation...
VI. Cost in relation to the nature of expenditures

1. Capital expenditures
2. Revenue expenditures

VII. Cost in relation to period of incurrence

3. Historical costs
4. Future costs
continuation...
VIII. Cost in relation to Managerial influence

1. Controllable costs
2. Non-controllable costs

IX. Cost in relation to Planning and Control

3. Standard costs
4. Budgeted costs
5. Absorption costing/Full costing
6. Variable costing/Direct costing
continuation...
5. Information costs

6. Ordering costs

7. Carrying costs

8. Out-of-pocket costs

X. Cost in relation to decision making and other

analytical purposes.

1. Relevant costs
continuation...
2. Incremental costs

3. Marginal costs

4. Opportunity costs

5. Sunk costs

6. Value added costs

Methods of Separating
Mixed Cost
1. High-Low method
2. Scattergraph method
3. Least-squares regression method
Methods of Allocating
Common Costs
1. Physical weight
2. Physical volume or space/area
3. Relative cost price
4. Relative sales price
Cost Classifications on
Financial Statements
1. Statement of financial position

a. 3 classes of inventories

a.1 materials inventory

a.2 work-in-process inventory

a.3 finished goods inventory

2. Statement of Income ( Profit or Loss }