Cost Accounting

Cost Accounting

1. General Cost Concepts

   • Three Cost Elements:
     • Direct Materials
     • Direct Labour
     • Manufacturing Overhead
     • Cost of Goods Manufactured and Sold Statement
       • DMBI
         • +Net Purchases
           • =DM Available
             • -DMEI
               • =DMU
                 • +Direct Labour
                   • +MOH
                     • =Cost of Production for the Period
                       • +WIPBI
                         • =Total Cost in Process
                           • -WIPEI
                             • =Cost of Finished Goods
                               • +FGBI
                                 • =Cost of Finished Goods Available for Sale
                                   • -Finished Goods Ending Inventory
                                     • =Cost of Goods Sold
       • Income Statement
         • Sales
           • -COGS
             • =Gross Profit
               • -Operating Expenses
                 • =Operating Profit
                   • +/- Other income or expenses
                     • =Net Income before tax
                       • -Tax
                         • Net Income
       • Prime Cost DL+DM
       • Conversion Cost DL+MOH

2. Job Costing

   • 1) Identify all jobs worked on
     • 2) Identify Beginning Balances (Including DM DL and Moa of previous perios)
       • 3) When jobs are new BB is zero
         • 4) Accumulate DM incurred during period
           • 5) Accumulate DL incurred during period
             • 6) Accumulate MOA, for this identify POHR
               • 7) All jobs equal to Total WIP
                 • 8) Unfinished Jobs = Ending Inventory WIP
                   • 9) Finished Jobs = Cost of Finished Goods
                     • 10) Finished but not Sold = FG ending inventory
                       • 11) Finished and Sold = COGS
                         • 12) Compare MOA to AMO( To see if over or under-applied)

3. Standard Costing

   • 1) Is what Cost should be on Budget and Product requirements
     • 2)Allowed DM or Dl hours
       • STDR quantity per unit X Actual production
       • 3) Quantity Variance is also known as efficiency variance
         • 4) FORMULAS
           • DM$VARIANCE = (STDR DM$ VS ACTUAL DM$) DM Purchases
             • DMQVARIANCE = (STDR DM allowed vs Actual DM used) STDR DM$
           • DL$VARIANCE ( STDR DL$ vs ACTUAL DL$) Actual Hoursur
             • DLQ VARIANCE = (DL Hours Allowerd vs Actual Hours)STDR DL$
           • VOH$Variance = (STDR VOH$ vs Actual VOH$)Actual hours
             • VOHQVARIANCE = (DL hours allowed vs Actual Hours ) STDR VOH$
           • FOH spending Variance = Actual Foh Total vs Budget FOH
             • Budget Foh = Hrs planned x STDR FOH$
             • FOH Volume var = Budget Foh - Stde Foh tot
               • Stdr Foh tot = HRS allowed x STR FOH$

4. Predetermined Overhead Costs - Normal Costing

   • 1) Overhead isn´t always available on time to accumulate cost
     • 2) When actual costing isn´t posiible, many companies choose Noraml Costing
       • 3) Normal Costing
         • Direct Materials ( REAL)
           • Direct Labour ( REAl )
             • MOH ( Applied )

5. Process Costing

   • 1)Each Process Cost Report is made of 5 schedules
     • 2) The first three schedules are the same, regardless the valuation method
       • 3) Materials added at beginnnig of process are considered complete
         • 4) Process that don´t add materials are also 100% DM
           • 5) Unit Cost Weighted Average divides total cost by equivalent units in process
             • 6) FIFO divides period cost by equivalent production units

6. Variable Cost - Setting Prices

   • 1) Margin Refers to Profitability measures
     • 2) Variable Direct Income Statement is an alternative presentation of the Income Stat.
       • 3) Variable Income Statement format is:
         • Some companies use accounting methods to set prices
         • Sales
           • -Variable Product Cosr
             • -Variable Operating Cost
               • =Contribution Margin
                 • -Fixed Production Cost
                   • -Fixed Operating Cost
                     • =Operating Profit