Cost Accounting

Cost Accounting

1. Concerned with determining cost structure and the best costing system for each organizartion based on product/service nature, manufacturing environment and resources

2. Three cost elements:

   • Direct Materials: All the parts or ingredients used to make a product. They are measured and traced to production
   • Direct Labor: The amount of work, measured in hours that is traceable to production. It involves labor that are physically in charge of making tha product.
     • Prime Cost: DM+DL
   • MOH: Indirect materials and supplies, indirect labor, rent, insurance, depreciation on assets, and propoerty tax.
     • Conversion Cost: DL+MOH

3. PRODUCTION FLOW CHART

   • DMBI +net purchase =DM Available -DMEI =DMU +DL +MOH =Prod. Cost f/Period +WIP BI =Total Cost in Process -WIP EI =COFG +FG BI =FG Avail. f/sale -FG EI =COGS
     • Income Statement: Sales -COGS =Gross Profit -Operating Ex. =Operating Prof. +/-Other income Expenses =Net income before tax -Tax =Net Income

4. NORMAL COSTING

   • POHR
     • Total estimated MOH/Estimated allocation base
       • Allocation base: It is a unit of measurement that measures and triggers MOH consumption and production efficiency.
     • MOA = POHR x Actual Base
       • MOA>AMO: overapplied MOA<AMO: underapplied
   • 1. Distribute the under-overapplied overhead among WIP, FG and COGS ending balances.
     • 2. Send directly the under-overapplied overhead to COGS.
   • ABC Costing
     • It assings MOH costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours.
     • First Step: Get the POHR for each activity.
       • Second Step: Multiply the POHR of each activity times the Estimated Driver.

5. JOB COSTING

   • Used for production of large, unique, high-cost items. Built to order rather than mass produced.
     • 1. Identify all orders
       • 2. Identify BB. Sum of DM, DL, and MOH.
         • 3. Assign DMU, DL, and MOA
           • WIP EI: Unfinished
           • FG EI: Finished, not sold
           • COGS: Finished and sold
           • COFG: Finished, whether sold or not.

6. PROCESS COSTING

   • It is used when there is mass production of similar products, where the costs associated with individual units of output cannot be differentiated from each other.
   • I. Physical Units: Beginning Inventory +Units Started =Units in Process -Ending Inventory =Units Finished and T-Out
     • II. Equivalent Units (for DM and CoCo): Units F & T-Out +Eqivalent End. Inv. =Eq. Units in Process -Eq. Ending Inv. =Equivalent Production.
       • III. Total Cost (for DM and Coco): Beginning Inventory +Period
         • IV. Unit Cost: DM per unit; CoCo per unit
           • V. Cost Assigned: a) Eq. Ending Inventory for DM and CoCo b) Units Finished
             • a) Eq. End. Inv x $ per unit b) Units Fin. x Total DM in Total Cost
           • Weighted Average: Total DM in Unit Cost/DM Equivalent Units in Process FIFO: Total DM Period in Total Cost/Equivalent Production
       • Eq. Ending Inv. DM x % given in Physical Units, same for CoCo

7. STANDARD COSTING

   • It is a spinoff of DM, DL and MOA accumulation. It is based on engineering and technical/financial rates for variance and fixed costs elements. Standard=goal
   • Variance: difference between real and standard cost.
     • Var DM$ =(stdr DM$ vs. actual DM$) DM purchases per unit Var DMQ=(stdr Q "allowed" vs. Acutal DM used) Stdr DM $
   • Formulas
     • DM $(rate) var= (stdr DM$ vs Actual DM$) DM Purchases DM Q(hours) var= (stdr DM allowed vs actual DM used) Stdr DM$
     • DL $ var= (stdr DL$ vs actual DL$) Actual hours DL Q var= (DL hrs allowed vs. actual hrs) Stdr DL$
     • VOH $ var= (stdr VOH$ vs actual VOH$) actual hrs VOH Q var= (DL hrs allowed vs actual hours) Stdr VOH$
     • FOH spending variance= (actual FOH total vs. budgeted FOH total) FOH volume variance= (budgeted FOH total vs. Standard FOH total)