1 - Introduction To Cost Accounting

INTRODUCTION TO COST
ACCOUNTING
PROF. ROCINANTE D. CERVANTES, CPA, MBA

Prayer
Mary our Lady of the Star, pray for us
Saint John Baptist de La Salle, pray for us.
Saint Benilde Romancon, pray for us
Live Jesus in Our Hearts!

Forever!
Learning Objectives
▪ Distinguish between financial,

managerial and cost accounting
▪ Distinguish between
merchandising and
manufacturing operations
▪ Identify the uses of accounting

data
▪ Distinguish between job order

costing and process costing
Users of Financial Information
Internal Users
Users of Financial Information
External Users
Types of Businesses
Financial Accounting vs Managerial
Accounting
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance
versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments
the whole organization of an organization
6. GAAP Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
Cost Accounting
▪ It is the intersection between
financial and managerial
accounting.
▪ It provides product cost

information to external parties,
such as stockholders, creditors
and various regulatory boards for
credit and investment decision.
▪ It also provides product cost

information to internal parties
such as managers for planning and
controlling.
Merchandising Business
Beginning Merchandise Inventory Beginning merchandise inventory XXX
Plus: Total purchases XXX
Cost of goods available for sale XXX

Total Purchases
Less: Ending Merchandise Inventory XXX
Cost of goods sold XXX

Cost of Goods Available for Sale
Ending Inventory
Cost of Goods Sold

Illustrative Problem
Sinra Inc sells ball pens to office supply stores and other retailers around
the world. On the date of April 1, the company’s inventory was
P101,000.00. During the year, the company purchased P109,000.00
worth of ball pens.
A physical count of the inventory on March 31 revealed that there was

P73,000 worth of pencils remaining. Compute the cost of goods sold for
the year.
Solution:
Beginning Inventory P 101,000.00

Purchases 109,000.00
Cost of Goods Available for Sale 210,000.00
Less: Ending Inventory 73,000.00
Cost of Goods Sold P 137,000.00
Uses of Cost Accounting Data
1. Determining Product Cost – helps management in gathering the data

needed to determine the product costs and thus generate
meaningful financial statements and other reports.
2. Various marketing decisions:
a. Determining the selling price of a product
b. Meeting competition
c. Bidding on contracts
d. Analyzing profitability
Planning and Control
Planning is the process of establishing objectives or goals for the firm

and determining the means by which the firm will attain them.
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 (or time
period) 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 factor of
production (materials, labor and facilities).
Control is the process of monitoring the company’s operations and

determining whether the objectives identified in the planning process
are being accomplished.
Manufacturing - Overview
Manufacturing Business Inventory
Manufacturer
Current Assets
❖ Cash
❖ Receivables
Materials waiting to
❖ Prepaid be
Expenses
processed.
Partially complete ❖ Inventories:
products – some 1. Raw Materials
material, labor, or 2. Work in Process
overhead has been 3. Finished Goods
added.
Completed products
awaiting sale.
Manufacturing Cost Flow
Manufacturing Business
Beginning Inventory Beginning merchandise inventory XXX
Plus: Cost of Goods Manufactured XXX
Cost of goods available for sale XXX

Cost of Goods Manufactured
Less: Ending Merchandise Inventory XXX
Cost of goods sold XXX

Cost of Goods Available for Sale
Ending Inventory
Cost of Goods Sold

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. There is no need to
determine the costs of different groups of products because the
product is uniform, each processing department becomes a cost
center.
3. Operation Costing – Is a hybrid costing system often used in

repetitive manufacturing where finished products have common,
as well as distinguishing characteristics.
Differences between Process and Job Order Costing
PROCESS COSTING JOB ORDER COSTING

1. Homogenous units pass 1. Unique jobs are worked on
through a series of similar during the time period.
processes.
2. Costs are accumulated by 2. Costs are accumulated by
processing department. individual job.
3. Unit costs are computed by 3. Unit costs are determined by
dividing the individual dividing the total costs on the job
departments’ costs by the cost sheet by the number of units
equivalent production. on the job.
4. The costs of production report 4. The job cost sheet provides the
provides the detail for the work in details for the work in process.
process account for each
department.
Comprehension Check
Please answer page 15 of your book. Cost Accounting

and Control by Norma D. De Leon.
Module Assignment
Please answer multiple choice exercise of Chapter 1 –

pages 16 to 20.
LIVE JESUS IN OUR HEARTS FOREVER
SEE YOU ALL NEXT WEEK!

1 - Introduction To Cost Accounting

Uploaded by

Copyright:

Available Formats

1 - Introduction To Cost Accounting

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1 - Introduction To Cost Accounting

Uploaded by

Copyright:

Available Formats

INTRODUCTION TO COST

PROF. ROCINANTE D. CERVANTES, CPA, MBA

Mary our Lady of the Star, pray for us

Saint John Baptist de La Salle, pray for us.

Saint Benilde Romancon, pray for us

Live Jesus in Our Hearts!

▪ Distinguish between financial,

▪ Identify the uses of accounting

▪ Distinguish between job order

▪ It provides product cost

▪ It also provides product cost

Beginning Merchandise Inventory Beginning merchandise inventory XXX

Plus: Total purchases XXX

Cost of goods available for sale XXX

Cost of goods sold XXX

Cost of Goods Sold

A physical count of the inventory on March 31 revealed that there was

Beginning Inventory P 101,000.00

1. Determining Product Cost – helps management in gathering the data

Planning is the process of establishing objectives or goals for the firm

a. Strategic Planning – concerned with setting long range goals and

Control is the process of monitoring the company’s operations and

Beginning Inventory Beginning merchandise inventory XXX

Plus: Cost of Goods Manufactured XXX

Cost of goods available for sale XXX

Cost of goods sold XXX

Cost of Goods Sold

2. Process Costing – A system applicable to a continuous process of

3. Operation Costing – Is a hybrid costing system often used in

PROCESS COSTING JOB ORDER COSTING

Please answer page 15 of your book. Cost Accounting

Please answer multiple choice exercise of Chapter 1 –

SEE YOU ALL NEXT WEEK!

You might also like