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Costman Reviewer

1. Cost management involves estimating, allocating, and controlling costs through activities like cost pooling, assignment, and allocation using bases like direct tracing or indirect association. 2. Managers must understand cost behavior and types like fixed, variable, and mixed to predict how costs change with activity and make good decisions. 3. Costs are classified by their nature, timing of recognition, and purpose for financial reporting or decision making.

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80 views4 pages

Costman Reviewer

1. Cost management involves estimating, allocating, and controlling costs through activities like cost pooling, assignment, and allocation using bases like direct tracing or indirect association. 2. Managers must understand cost behavior and types like fixed, variable, and mixed to predict how costs change with activity and make good decisions. 3. Costs are classified by their nature, timing of recognition, and purpose for financial reporting or decision making.

Uploaded by

Honey Muli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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COSTMAN REVIEWER • Statement of Financial Position –

presented as part of inventories


Cost is the process of estimating, allocating, and • Income Statement - presented as
controlling project costs. Its purpose is achieving operating expenses or COGS
some economic benefit which will promote the
profit-making ability form. It is also an outlay or 4. Predicting Cost Behavior - Understanding
expenditure of money to acquire goods and how costs behave when activity changes are the
services that assist in performing operations. only way to effectively predict costs. Managers
must understand how costs are structured to
Cost Pools – collected into meaningful groups. make good decisions. (Fixed, variable, or mixed).
This may be classified by the type of cost, source,
and responsibility. • Cost Behavior – how a cost will react or
respond to changes in the business
Cost Object – Any item to which cost can be activity.
traced and that has a key role in management • Fixed Cost – remain unchanged for a
strategy can be considered as cost object. given time-period regardless of change in
activity (volume)
Cost Driver – effect of changing the level of total • Variable Cost – costs that change directly
cost. in proportion to changes in activity.
• Semi-variable Cost – contain both and
Cost Assignment – assigning cost to cost pools or variable elements.
from cost pools to cost objectives.
5. Type of inventory - - to ensure that you have
Cost Allocation – assignment of indirect cost to enough product on hand and to recognize when a
cost pools. shortage occurs. Either sell or use in production.

Allocation bases – used to allocate cost • Raw materials – have been purchased but
not used at the end of the period.
1. In Nature Management Functions – this is • Work in Progress – the cost associated
planning, decision making, organizing, leading, with goods partially completed at the end
and controlling. Like monitoring and evaluating of the period.
activities etc. • Finished Goods Inventory – completed
goods that have not been sold at the end
• Manufacturing Costs are all costs of the period.
associated with the production of goods.
These are direct labor, direct materials, 6. Traceability Cost Objective - to identify cost
and factory overhead (Indirect materials that are clearly identifiable and traceable to a
and labor). costing object, such as product units, company
• Non-Manufacturing Cost includes costs segments, or a specific activity
related to selling and other activities not
related to the production of goods. These • Direct Cost – economically traced to a
are marketing costs and general single cost object.
administrative costs. • Indirect Cost – not directly traceable
object
2. Timing Recognition as Expense - A company
can make its business appear more successful by 7. Managerial Influence - Managers can
shifting the date of when expenses are influence cost behavior by making decisions
recognized. about product or service attributes, for example.

• Product Cost – involved in acquiring or • Controllable Cost – significant influence by


making a product. a particular manager within the time-
• Period Cost – identified with accounting period under consideration.
periods and not included in product costs. • Non – controllable cost – cost over which
a given manager does not have a
3. Financial Statement - a financial report significant influence.
showing revenues, expenses, and profits, for
which there are subtotals of the various revenue 8. Used for Planning and Control - the process
and expense classifications. of estimating costs, agreeing on a budget, and
tracking actual and forecasted costs against that
budget. Cost control begins with the design phase
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and continues through the procurement and additional project as opposed to the
construction phases. discrete unit.
• Value Added Cost – costs that add value
• Standard Cost – a predetermine cost to the product.
estimate that should be attained; usually
expressed in terms of cost per unit. VARIABLE COSTING (Direct Costing)
• Budgeted Cost – used to represent
expected/planned cost for a given period. - Method of recording and reporting costs
• Absorption Costing – a method that which regards only the variable
includes all manufacturing costs in the manufacturing costs as the variable
cost of a unit of product. manufacturing costs as product costs.
• Direct Costing – product costing where
fixed costs are charged against revenue Variable Cost considered as COGS.
as incurred and are not assigned to
specific units of a product manufactured. - Fixed manufacturing costs are written off
• Information Cost – costs of obtaining as period costs.
information.
• Ordering Cost – costs that increase with ABSORPTION COSTING (Full Costing)
the number of orders placed for inventory.
• Out-of-pocket cost – are costs that must - method of product costing in which all
be met with a current expenditure or cash manufacturing costs, fixed and variable,
outlay. are treated as product or inventoriable
costs.
9. Time-frame perspective - The decision-
maker must examine both the short- and long- Product cost is composed of fixed and variable
term consequences of his decisions. He must cost
place equal focus on the various periods.
- Inventory account absorbs all
• Committed Costs - manufacturing cost (both fixed ang
• Discretionary Cost variable overhead)

10. Time Period – like historical cost and future PRODUCT COST COMPONENTS
cost
Absorption Costing Variable Costing
• Historical Cost – incurred in a past period.
• Future Cost expected to be incurred in a Direct Materials Direct Materials
future period.
+Direct Labor +Direct Labor
11. Analytical Purposes - to identify the true (full)
costs of each of the programs (services and/or +Variable FOH +Variable FOH
goods) under consideration After that, you can
use this information to: Identify and prioritize cost- +Fixed FOH = Product Cost
saving opportunities.
= Product Cost
• Relevant Cost – future costs that are
different under one decision alternative
that under another decision alternative.
• Incremental Cost – the difference between Absorption Costing
two or more alternatives.
• Sunk Cost – past costs that have been Sales
incurred and are irrelevant to a future -COGS COGS composed of DL,
decision. DM, OH. This is called
• Opportunity Cost – value of the best Mfg Cost/Product Cost
alternative forgone as the result of =GP
selecting a different use of resource or by -OPEX OPEX composed of
choosing a particular strategy. selling and admin. =
• Marginal Cost – the costs associated with Period Cost
the next unit, or the next project or =Net Income
incremental cost associated with an
Focus: product vs. period
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Variable Costing

Sales
-Variable Cost Mfg and Selling &
Admin
=Contribution Margin
-Fixed Cost Mfg and Selling &
Admin
=Net Income
Focus: fixed and variable

Example: COST FOR SOLD UNITS

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Example: COST FOR PRODUCED UNITS

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