ACCT6374 - Managerial

Accounting & Strategic Planning

Week 1
Cost Concepts and the Cost
Accounting Information System
THE COST CONCEPT
 Objective

• Identify The Cosy Concept

• Understand The Cost Accounting Information System

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 The Cost Concept

• Cost concepts have developed according to the needs of

accountants, economists, and engineers.
• Cost: “an exchange price, a forgoing, a sacrifice made to
secure benefit. In financial accounting, the forgoing or
sacrifice at date of acquisition is represented by a current
or future diminution in cash or other assets.”

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 The Cost Concept

Cost Objects
• is defined as any item or activity for which costs are
accumulated and measured.

Sumber :Carter. (2006). Cost Accounting. 14. Cengage Learning. Ohio. ISBN: 0-759-33809-4.

• Answering fundamental question about cost: which cost?

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 The Cost Concept

Cost Objects
• Because of the multiple needs in cost finding, planning, and
control, cost accounting systems are multidimensional.
• The design of cost accounting systems and their
implementation must address these multiple requirements.

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 The Cost Concept

Traceability of Costs to Cost Objects

To identify:
• Direct
• Indirect

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 The Cost Concept

Cost Traceability in Service Industries

pricing decisions, bidding on jobs, and dropping or adding
a service, knowing the costs of different services is of
paramount importance in any competitive environment,
and the traceability of costs is as fundamental in
calculating the cost of a service as it is in calculating the
cost of a manufactured good.

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THE COST ACCOUNTING
INFORMATION SYSTEM
 The Cost Accounting Information
System
• Must reflect the division of authority so that individual
managers can be held accountable.
• Although the accounting records will not provide all the
necessary information for effective management, but
accountant must know the activities related to the
management like payment in payrolls.

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 The Cost Accounting
Information System
• Focus on management needs and attention.
• Some requirements for record keeping and reporting are
imposed on an organization by external forces.

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 The Cost Accounting Information
System
Sensitivity to Changing Methods
• When a manufacturer company has highly automated
and robotics-oriented may employ little if any labor
directly traceable to each unit of output; this
minimizes planning and controlling direct labor and
calls for methods of cost allocation that are not based
on labor.
• The just-in-time (JIT) = reduce dramatically the
investment in inventories, traditional costing focus on
tracking large stocks of work in process.

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 The Cost Accounting Information
System
Nonfinancial Performance Measures
•The reasons for the increased attention being given to nonfinancial
measures include:
1. Dissatisfaction with financial measures.
2. Growing recognition that traditional financial measures are
affected by phenomena that are not necessarily relevant to
the purpose at hand.
3. Dissatisfaction with the slow pace at which a company’s
accounting and data processing.
4. Dissatisfaction with financial measures of plant utilization.
5. Dissatisfaction with financial measures of processing
efficiency.

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 The Cost Accounting Information
System
Nonfinancial Performance Measures
• Respond to these problems by using simple physical data rather than
allocated accounting data, by being unconnected to the general
financial accounting system, by being selected to measure only one
specific aspect of performance rather than to be “all things for all
purposes,” or by a combination of these factors.

• Some nonfinancial performance measures:

1. Simple counts or percentages of desirable or undesirable events
2. Intended to measure the efficiency or effectiveness of a production
process.

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 The Cost Accounting Information
System
Nonfinancial Performance Measures
– manufacturing cycle efficiency calculated as:

– A third type of nonfinancial performance measure

indicates success in simplifying a process.

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 Classifications of Costs

• The most commonly used classifications are based on

the relationship of costs to the following:
1. The product (a single lot, batch, or unit of a good or
service)
2. The volume of production
3. The manufacturing departments, processes, cost
centers, or other subdivisions
4. The accounting period
5. A decision, action, or evaluation

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 Classifications of Costs

Costs in Relation to the Product

• Manufacturing cost— usually defined as the sum of
three cost elements: direct materials, direct labor, and
factory overhead.
• Direct materials
• Direct labor
• Factory overhead
• Indirect materials
• Indirect labor

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Classifications of Costs in
Relation to the Product

Sumber :Carter. (2006). Cost

Accounting. 14. Cengage
Learning. Ohio. ISBN: 0-759-
33809-4.
 Classifications of Costs

Commercial Expenses
– Commercial expenses : marketing expenses and
administrative expenses (also called general and
administrative expenses).
– Marketing expenses : include the expenses of
promotion, selling, and delivery.

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 Classifications of Costs

Commercial Expenses
• Administrative expenses include expenses incurred in
directing and controlling the organization. Not all such
expenses are allocated as administrative expenses.
• The salary of a vice-president in charge of
manufacturing can be treated as a manufacturing
cost, and the salary of a vice-president in charge of
marketing can be treated as a marketing expense.

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 Classifications of Costs
Costs in Relation to the Volume of Production
• Variable costs: change in proportion to changes in activity
within a relevant range:
1. Supplies
2. Fuel
3. Small tools
4. Spoilage, salvage, and reclamation expenses
5. Receiving costs
6. Royalties
7. Communication costs
8. Overtime premium
9. Materials handling
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 Classifications of Costs
Costs in Relation to the Volume of Production
•Fixed Costs are constant in total amount within a relevant range of activity.
1. Salaries of production executives
2. Depreciation
3. Property tax
4. Patent amortization
5. Supervisory salaries
6. Insurance—property and liability
7. Wages of security guards and janitors
8. Maintenance and repairs of buildings and grounds
9. Rent

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 Classifications of Costs

Costs in Relation to the Volume of Production

• Semivariable costs (fixed and semi variable)
• Inspection
• Cost-department services
• Payroll-department services
• Personnel-department services
• Factory office services

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 Classifications of Costs

Costs in Relation to the Volume of Production

• Semivariable costs
1. Materials and inventory services
2. Water and sewage
3. Maintenance and repairs of plant machinery
4. Payroll taxes
5. Heat, light, and power

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 Classifications of Costs
Costs in Relation to Manufacturing Departments or Other Segments
• In a producing department, manual and machine operations such
as forming and assembling are performed directly on the product or
its parts.
• In a producing department, forming and assembling are performed
directly on the product or its parts.
• The terms direct and indirect can also be used in connection with
charging overhead costs to departments of any organization. If a
cost is traceable to the department in which it originates, it is
referred to as a direct departmental cost; the salary of the
departmental supervisor is an example.

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 Classifications of Costs

Costs in Relation to Manufacturing Departments or Other

Segments
• If a cost is shared by several departments that benefit
from its incurrence, it is referred to as an indirect
departmental cost; building rent and building
depreciation are examples of indirect departmental
costs. In this cost classification system, the department is
the cost object.

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 Classifications of Costs

Costs in Relation to Manufacturing Departments or Other

Segments
• Common costs are costs of facilities or services
employed by two or more operations.
• Joint costs occur when the production of one product
makes it inevitable that one or more other products are
also produced. The meat-packing, oil and gas, and liquor
industries are good examples of production that involves
joint costs.

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 Classifications of Costs

Costs in Relation to a Decision, Action, or Evaluation

• Differential cost is one name for a cost that is relevant to
a choice among alternatives.
• Sometimes called marginal cost or incremental cost. If a
differential cost will be incurred only if one particular
alternative is followed, then that cost can also be called
an out-of-pocket cost associated with that alternative.

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 Classifications of Costs

Costs in Relation to a Decision, Action, or Evaluation

• A cost that has already been incurred and is, therefore,
irrelevant to a decision is referred to as a sunk cost.
• In a decision to discontinue a product or division, some
of the product’s or division’s costs may be unaffected by
the decision; these are called unavoidable costs.
• The avoidable costs, in contrast, are relevant to the
decision.

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 ACCT6374 - Managerial
Accounting & Strategic Planning
Week 1
Job Order Costing
 Objective

• Understand accounting in cost structure from Job Order

Costing, not only in manufacturing company but also in
service company too.
• Applying job order sheet in service company.
 Overview Job Order Cost
System
• A job is the output identified to fill a certain customer order
or to replenish an item of stock on hand.
• For job costing to be effective, jobs must be separately
identifiable because the products are heterogeneous.
• Details about a job are recorded on a job order cost sheet or
simply cost sheet to facilitate the determination of profit.
 Job Order Sheet

• The most important thing in job order cost system is job

order cost sheet which can be in paper or electronic form.
• Although many jobs may be worked on simultaneously, each
cost sheet collects details for one specific job.
• The contents and arrangement of cost sheets differ from
one business to another.
Job Order Sheet

Sumber :Carter. (2006). Cost

Accounting. 14. Cengage
Learning. Ohio. ISBN: 0-759-
33809-4.
ACCOUNTING FOR MATERIALS
 Accounting for Materials

Material Purchased :
Materials account record the purchase of direct material
and indirect material such as: component, supplies and
sparepart.

Journal :
Materials xxx
Account Payable or Cash xxx
 Accounting for Materials

Materials Used :
Direct materials for a job are issued to the factory on the
basis of materials requisitions.

Journal:
Work in Process xxx
Materials xxx
 Accounting for Materials

Materials Used :
Direct materials for a job are issued to the factory on the
basis of materials requisitions.

Journal:
Work in Process xxx
Materials xxx
 Accounting for Materials
Materials used for indirect materials and supplies :
Materials used for indirect materials and supplies recorded
to Factory Overhead Control account.

Journal :
FOH Control xxx
Materials xxx
 Accounting for Materials

As already described in previous discussion, the purchase

of direct material and indirect material recorded to
materials account. Materials used for indirect materials,
supplies, and indirect labor recorded to factory overhead
control account.
ACCOUNTING FOR LABOR
 Accounting for Labor
Factory Labor Cost Incurred :
To record labor cost for direct labor, indirect labor, marketing
or administrative labor.

Journal:
Payroll xxx
Accrued Payroll xxx
 Accounting for Labor

Recording the payment of accrued payroll :

As already recorded in previous slide about labor cost, so
the payment for the accrued payroll should be recorded.

Journal :
Accrued Payroll xxx
Cash xxx
 Accounting for Labor
FOH Distributed :
Record the distribution of factory labor cost either direct
labor costs or indirect labor costs.

Journal direct labor cost distributed:

Work In Process xxx
Payroll xxx
 Accounting for Labor

Indirect labor costs is an element of actual factory

overhead, which is insert as factory overhead (FOH) control.

Journal indirect labor cost distributed:

FOH Control xxx
Payroll xxx
 Accounting for Labor

Sequence journal in accounting for labor :

• Calculate payroll for labor cost, such as direct labor, indirect
labor, selling expenses and administrative expenses.
• Payment the accrued payroll.
• Distribution of factory labor cost either direct labor costs or
indirect labor costs.
 Accounting for Factory
Overhead
• The lack of direct tracing makes the accounting very
different; specifically, the roles played by direct materials
requisitions and direct labor time tickets have no
counterpart in overhead accounting.
• Overhead costs are broadly accumulated without distinction
as to job, and then total overhead costs are allocated among
all jobs.
ACTUAL FACTORY OVERHEAD
INCURRED
 Actual Factory Overhead
Incurred
• Debited FOH Control account for expense related to factory
besides indirect material and indirect labor.

• Credited account such as:

- Cash
- Account Payable
- Accumulated depreciation
- Prepaid insurance
- Prepaid rent
 Actual Factory Overhead
Incurred
Example :
Depreciation expense-Building year 2010, include :
Depreciation expense-office Rp 30.000.000,- and
Depreciation expense-factory Rp 25.000.000,-

Journal :
FOH Control Rp. 25.000.000,-(cost accounting)
Depreciation Expense-Building Rp. 30.000.000,-(financial accounting)
Accumulated Depreciation-Building Rp. 55.000.000,-
 Estimated Factory Overhead
Applied
• Applied FOH really needed in proactive company who want
to know the FOH cost early, when in fact there are several
FOH cost known at the end of accounting period.
• The amount of overhead charged to a job, called applied
overhead.
 Estimated Factory Overhead
Applied
• Journal for factory overhead applied:
Work In Process xxx
Applied Factory Overhead xxx

• Applied factory overhead is closed to factory overhead

control, the closing entry is:
Applied Factory Overhead xxx
Factory Overhead Control xxx
 Estimated Factory Overhead
Applied
• Journal for factory overhead applied:
Work In Process xxx
Applied Factory Overhead xxx

• Applied factory overhead is closed to factory overhead

control, the closing entry is:
Applied Factory Overhead xxx
Factory Overhead Control xxx
 Estimated Factory Overhead
Applied

• At the end of period, applied factory overhead is closed by

making the adjusting entries to determine over /
underapplied overhead.

• Adjusting entries:
Applied Factory Overhead $13,200
Factory Overhead Control 13,200
 Over atau Under Applied
Overhead
• Applied FOH > FOH Control = Overapplied FOH.

• Applied FOH < FOH Control = Underapplied FOH.

 Accounting for Jobs Completed
and Product
Recording jobs completed and directly sold
• A job for specific customer can be shipped when completed
and thus never enter finished goods inventory.

• Journal : Account Receivable xxx

Sales xxx
Cost of goods sold xxx
Work in Process xxx
 Accounting for Jobs Completed
and Product
Recording jobs completed and keep the product before sold
• Journal : Finished goods xxx
Work in Process xxx
• Journal : Account Receivable xxx
Sales xxx
Cost of goods sold xxx
Finished Goods xxx
JOB ORDER COSTING IN SERVICES
BUSINESS
 Job Order Costing in Services
Business
• Remember the importance of labor cost, so pre-determined
overhead rate determine based on direct labor hours.
• Pre-determined overhead rate obtained already include
labor cost and factory overhead cost.
JOB ORDER SHEET IN SERVICES
BUSINESS
Job Order Sheet in Services
Business

Sumber :Carter. (2006). Cost

Accounting. 14. Cengage
Learning. Ohio. ISBN: 0-759-
33809-4.
 Reference

• William K, Carter, Jin Fa Hwang, Sheng Te Chou. (2015). Cost

Accounting: An Asia Edition. 01.Cengage Learning Asia. -.
ISBN: 9789814591317.

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Thank You