AE 22A: COST ACCOUNTING AND

CONTROL PART 1
CHAPTER 1: INTRODUCTION TO
COST ACCOUNTING
CHERRY ANNE G. ALBONIA, CPA, MBA
INSTRUCTOR
Learning Outcomes:

 After completing this module, you can:

 Distinguish between financial, managerial and cost accounting.
 Distinguish between merchandising and manufacturing operations.
 Identify the uses of cost accounting data
 Distinguish between job order costing and process costing
 Introduction to Cost and Cost Management
Accounting
 Provides management with costs for products, inventories, operations or functions and compares actual to
predetermined data
 It also provides a variety of data for many day-to-day decisions as well as essential information for long-
range decision
 Functions of managerial accounting
 Determining the cost
 Providing relevant information for better decision-making
 Providing information for planning, control, decision-making and application
 Uses of Cost Accounting Data
 1. Determining Product costs
 2. Planning and Control
 Planning- deals with the estimation of product costs, setting up of costing system to record cost data,
preparation of cost standards and budgets, planning of materials and manpower resources, analyzing
cost behavior with changes in levels of activity.
 Planning can be divided into three components:
 a. Strategic planning- concerned with setting long range goals and objectives to determine the overall
direction of the company.
 b. Tactical planning- concerned with plans for a shorter range and emphasizes plans to achieve the
strategic goals.
 c. Operations planning- relates to the day to day implementation of tactical plans. It emphasizes the
coordination of the major factors of production (materials, labor and facilities).
Uses of Cost Accounting Data

 Control- deals with the maintenance of product costing record, comparison of actual
performance with standards or budgets, analysis of variances, recommendation of
corrective actions, controlling cost to ensure operational efficiency and effectiveness
 Decision-making-deals with whether it is more profitable to make or buy a component,
determine the economic order quantity and production batch size, replace fixed asset, add
or drop products, decide pricing
 Application

 Cost accounting has extended from manufacturing operations to a variety of service industries such as
hotels, bands, airline, etc.
 Cost accounting system should be flexible and adaptable to meet the new business environment and
the changing nature of the company
 Cost Accounting

 it is the intersection between financial and managerial accounting. It is needed and used by both
financial and managerial accounting. Cost accounting provides product cost information to external
parties, such as shareholders, creditors and various regulatory boards for credit and investment
decisions. Cost accounting provides product cost information also to internal parties such as managers
for planning and controlling.
 External parties—stockholders, creditors, and regulators
 For investment and credit decisions
 Complies with GAAP
 Enterprise focus
  
 Internal parties- Managers, Supervisors, etc
 Planning, controlling, and decision making
 Evaluating performance
 Includes upstream and downstream costs
 Merchandising- a merchandising company normally buys a product that is ready for
resale when it is received.
 Manufacturing- a manufacturing entity converts raw materials into finished goods.
Two Basic Product-Costing Systems

 1. Job order costing- a system for allocating costs to groups of unique product. It is
applicable to the production of customer specified products such as the manufacture of
special machines.
 2. Process Costing- a system applicable to a continuous process of production of the same
or similar goods, e.g. oil refining and chemical production. Since there is no need to
determine the costs of different groups because the product is uniform, each processing
department becomes a cost center.
END