Cost c o n t r o l​

cost
accounting
& control
accounting
costing Prepared by: Ella Marie P. Aballe, CPA
Chapter 3
cost COST ACCOUNTING PROCESS
Understand Distinguish Account Prepare

Cost accounting cycle Merchandising and Direct material, labor and FS for manufacturing entities

manufacturing entity overhead

Presentation title 2
The conversion process
To some extent, all organizations convert or change
inputs into outputs. Inputs typically consist of
material, labor, and overhead. In general, product
costs are incurred in the production (or conversion)
area and period costs are incurred in all
nonproduction (or non-conversion) areas.
Conversion process outputs are usually either
products or services.
The sum of direct labor and overhead costs is
referred to as conversion cost—those costs that are
incurred to convert materials into products. Th e
sum of direct material and direct labor cost is
referred to as prime cost.

Presentation title 3
 Retailers vs
Manufacturers/Service
Company

Retail companies purchase
goods in finished or almost
finished condition, which
typically need little, if any,
conversion before being sold to
customers.
Costs associated with
such inventory are usually easy
to determine, as are the
valuations for financial
statement
Presentation.
Firms (such as retail stores)
that engage in only low or
moderate degrees of
conversion ordinarily have
only one inventory account
(Merchandise Inventory).
 Retailers vs
Manufacturers/Service
Company

In comparison, manufacturers or service companies engage in activities that involve the physical
transformation of inputs into finished products or services.

The materials or supplies and conversion costs of manufacturers and service companies must be
assigned to output to determine the cost of both inventory produced and goods sold or services
rendered.

Cost accounting provides the structure and process for assigning material and conversion costs to
products and services.
 Manufacturers Company

The production or conversion process occurs in three stages:

1. work not started (raw material),

2. work started but not completed (work in process), and
3. work completed (finished goods).

Thus, manufacturers normally use three inventory accounts to accumulate costs as goods
flow through the manufacturing process:

1. Raw Material Inventory,

2. Work in Process Inventory (for partially converted goods), and
3. Finished Goods Inventory
 PERPETUAL
INVENTORY
ACCOUNTING
SYSTEM

Presentation title 7
 MATERIALS INVENTORY

Materials inventory account is made up of the balances of

materials and supplies on hand. This account is maintained
 MANUFACTURING the same way as merchandise inventory account, the
difference is the inventory cost assigned. Materials are
INVENTORY ACCOUNTS usually purchased for use in production. Item taken out of
material inventory and requisitioned into production is
transferred to Work in Process.

Presentation title 8
  MANUFACTURING
INVENTORY ACCOUNTS

Presentation title 9
 WORK IN PROCESS INVENTORY

 MANUFACTURING All manufacturing costs incurred and assigned to products

being produced are classified as Work in Process Inventory
INVENTORY ACCOUNTS costs.

Presentation title 10
  MANUFACTURING
INVENTORY ACCOUNTS

Presentation title 11
 FINISHED GOODS INVENTORY

 MANUFACTURING This inventory account has the same characteristics of the

Merchandise Inventory Account. All cost debited represents
INVENTORY ACCOUNTS the transfers from Work in Process Inventory.

Presentation title 12
  MANUFACTURING
INVENTORY ACCOUNTS

Presentation title 13
COMPONENTS
OF PRODUCT
COST

Presentation title 14
COMPONENTS
OF PRODUCT
COST

Presentation title 15
COMPONENTS
OF PRODUCT
COST

Presentation title 16
 MANUFACTURING
COST FLOW

Presentation title 17
 NAME COMPANY
STATEMENT OF COST OF GOODS SOLD
FOR THE YEAR ENDED 20XX

COST OF GOODS SOLD

STATEMENT

Presentation title 18
Thank
thank
Thank
you
You
You
You