Colegio de San Juan de Letran

ACC101: Cost Accounting and Control

Mr. Brian Christian Villaluz
Written Output #1
Max Score: 65
INSTRUCTIONS: Do a research on cost accounting and answer the following: [65pts. in
total]
1. What is Cost Accounting? Financial Accounting? Management Accounting? [6pts]
 Cost Accounting is the art and science of recording, classifying, summarizing and
analyzing costs with the purpose of cost control, cost calculations and estimates and cost
reduction, thus enabling management to make wise business decisions. Financial
Accounting refers to the bookkeeping of the financial transactions such as purchase,
sales, receivables, and payables and finally preparing the Financial Statements which
includes Income Statement, Balance Sheet and Cash Flows. Management Accounting is
a method of preparing management reports and accounts containing reliable and timely
financial and statistical details that managers need to make regular and short-term
decisions.

2. State the differences between cost accounting and financial accounting. [5pts]
 The information provided by the Cost Accounting is useful in managers' decision-
making to track costs, but it lacks comparability. The information given by the financial
accounting will allow comparisons, but this information can not be used for future
forecasting. Cost Accounting 's purpose is to track expenses, but the aim of financial
accounting is to maintain full records of financial details, on the basis of which
reporting can be performed at the end of the accounting period.

3. State the differences between cost accounting and management accounting. [5pts.]
 The main difference between Cost Accounting and Management Accounting is that
Cost Accounting gathers and analyzes cost-related information that only offers
quantitative information to report users, whereas Management Accounting manages
both financial and non-financial information, i.e. includes both quantitative and
qualitative information. Management Accounting contains a lot of corporate
considerations such as decision taking, strategizing, planning, performance
management, risk management etc. On the other hand, Cost Accounting just revolves
around cost estimation, cost management and overall company cost reduction.
4. What are the different uses of information generated by cost accounting? [3pts.]
 Cost accounting provides the detailed cost information required by management to
monitor current operations and plan for the future. Cost accounting information is also
commonly used in financial accounting but its primary function is to facilitate decision-
making by managers.

5. Who are the cost accountants? What are their functions in a business organization?
[5pts]
 Cost Accountants help businesses within the organization by supervising and
reviewing production and procurement expenses. They review facilities and products,
document data and advise on cost-effective and financially feasible options. A cost
accountant is responsible for reducing the financial expenditure of a business, and
increasing profits. Such tasks include assessing real production cost or service costs,
scrutinizing related business expenditures, evaluating productivity and planning the
company budget. Cost Accountants are expected to work closely with management to
achieve the financial targets effectively.

6. What are the three types of businesses according to their nature? Explain each. [6pts.]
 Service Business - A service type of business provides intangible products (products
with no physical form). Service type firms offer professional skills, expertise, advice,
and other similar products.

 Merchandising Business - This type of business buys products at wholesale price and
sells the same at retail price. They are known as "buy and sell" businesses. They make
profit by selling the products at prices higher than their purchase costs. A merchandising
business sells a product without changing its form.

 Manufacturing Business - In contrast to a merchandising business, a manufacturing

business buys products intended to use them as materials in making a new product. Thus
a transformation of the purchased products occurs. A manufacturing business combines
its production process with raw materials, labor and overhead costs. They will then sell
the manufactured goods to customers.

7. Define the term “cost”. [2pts.]

 In accounting, cost are classified as the amount of cash (or the equivalent of cash)
given up for an item. Cost covers all the costs required to get an asset and ready for use.

8. What is a cost object? [2pts.]

 A cost object is a managerial term for a product, process, department or customer
from which costs originate or are related. In other words, it is something which can
define costs and trace them back to. Also a cost object can be a consumer, a computer, a
group of machines, a group of employees, etc.
9. What is cost assignment? [2pts.]
 Cost assignment is the assigning of costs to the activities or artifacts which triggered
the costs incurred. The definition is used widely in activity-based costing, where
overhead costs are linked back to the activities that cause the overhead to be incurred.
Costs allocation is based on one or more cost generators.

10. Explain the concept of cost behavior. Why is it important to have knowledge on cost
behavior? [5pts.]
 Cost behavior is the way that changes in business operation affect expenses. When
designing the annual budget, a business manager will be aware of expense habits in
predicting whether any costs would increase or decline. Knowing how costs behave and
why they change is an important component for price analysis, cost control and budget
management. There are a range of costs that go into a product being made or a service
being provided. In this section, we will describe costs of production and time, and
review examples of fixed and variable costs.
11. Enumerate and explain the different cost classifications for assigning cost to cost
objects. [4pts.]
 Direct Cost - A direct cost is a cost that is easy to trace to a cost object. For an
accounting or law firm, it is easy to determine the number of hours and cost of working
on a client because all staff is required to assign their time to clients throughout the
work week.
 Indirect Cost - An indirect cost is a cost that must be allocated to a cost object because
it cannot be directly traced. The cost of a receptionist in an accounting firm is hard to
assign to individual clients because his or her time is not being tracked by the client.

12. Enumerate and explain the different cost classifications for a manufacturing company.
[10pts.]
 Batch Cost - The cost incurred while producing a whole lot of identical (batch)
products are known as batch costs. Each lot differs from the other, and its batch number
identifies the units lying under a batch. Some of examples are pharmaceuticals,
automobiles, and electronic products.

 Process Cost - The cost incurred in carrying out various operations in a streamlined
production process are called process cost. We can derive the process costs of a single
unit or product by dividing the total cost of a process by the number of units produced.

 Operation Cost - The costs incurred in a specific business function that contributes to
the production process are known as operation costs. It helps to regulate the business
activities mechanism by monitoring the costs incurred for each business operation.

 Operating Cost - Refers to the day-to-day expenses incurred by an organization to

ensure that the operating costs are known as uninterrupted operating cost.
  Contract Cost - The cost of entering into a contract with a buyer or seller by agreeing
mutually to the terms and conditions so mentioned is called a contract cost. It includes a
contract to bid, contract to price escalation, tenders, etc.

 Joint Cost - The combined cost of producing two or more useful products at the same
time is known as the Joint Cost. The cost of milk processing to obtain cottage cheese
and buttermilk, for example;
13. Enumerate and explain the different cost classifications for financial statement
presentation [4pts.].
 Capitalized Cost - are first recorded as an assets (capitalized) when they are incurred.
These costs are presumed to provide future benefits to the company.

 Non-capitalized Cost - are recorded as expenses of the accounting period when they are
incurred.
14. Enumerate and explain the different cost classifications for predicting cost behavior
[4pts.].
 Fixed costs are those that do not change within the relevant range, with the level of
activity. Even if no units are made, those costs will be incurred. For example rent
expenses, straight-line depreciation expenses, etc.

 Variable costs change in direct proportion to manufacturing or production level. This

means that as more units are generated, overall variable cost increases and decreases as
fewer units are produced. The average variable cost is constant, i.e. the variable cost per
unit.

 Mixed costs or semi-variable costs have properties of both fixed and variable costs due
to the presence of both variable and fixed components in them. An example of mixed
costs is telephone expense, as it usually consists of a fixed component such as line rent
and fixed subscription fees, as well as variable costs charged per minute.
15. What are your expectations in this course? [2pts.]

 I expect our subjects to widen our knowledge about the topics being taught in these
subjects.