What is Cost Accounting?

Cost Accounting - is the measuring, recording, and reporting of information related to the organization's
acquisition and consumption of resources so that management can make better financial decisions.

Measuring - assigning value to a transaction

Recording- would be used in the journal, trial balance etc.

Reporting - is a preparing a report like financial statements that’s part of reporting kaya lang it is more
specific kasi it involves this process pero ang pinakafocus ay cost.

Cost Accounting - is directly concerned with the determination and use of product and service costs. It
informs management with the cost of rendering a particular service, buying and selling a product, and
producing a product.

Cost - is a sacrifice of resources or an outlay of cash of promises to pay cash in the future.

Yung cost yung pera na ilalabas natin kapalit ng isang product or service.

Accountants- are providers of useful information to interested users in various value streams.

Value Chain- is a set of value-adding functions or processes that convert inputs into products and
services;

A series of processes or action that are necessary from the time na dinidevelop palang yung product to
the point na nadeliver or naconsume na yung product.

1. Research and Development - a value chain is started with this, ito yung punto na inaaalam palang
natin kung marketable ba yung product, feasible ba to, magagawa ba yung product na to. So meron na
ditong point na niresearch or inaral yan. May cost din dito pero sa financial accounting expense siya.
Ineexpense siya dahil if you cannot see any future benefit anymore sa isang cost automatically you right
it out as an expense pero sa value chain ito ay may kaakibat na cost dahil cinoconsider mo to sa
pagdedevelop ng cost ng isang product.

2. Design of products, services, processes - Pagka ito ay nakita natin na workable, gagawa tayo ng
prototype ibig sabihin mga sample. May cost yes kasi you have to develop a prototype, yung mga unang
example yung mga paparisan natin another gastos yon para makita yung final output.

3. Production - after that you have to sell it

4. Marketing – of course di mo ginawa yan kung di ka gumamit ng marketing, and marketing kasama
dyan yung distribution

5. Distribution - of course minsan may mga manufacturer na naghahandle ng distribution channels nila,
kung san san nila ipapadala yung product na yan

6. Customer Service - and hanggang sa makarating sa customer, they have to get feedback para sa
customer service.

NOTE: Kung production lang pagfofocusan natin ng cost understated siya, ibig sabihin kulang.
1 and 2 upstream - upstream kasi sila yung cost that involve before the manufacturing of a product.

4 and 6 downstream- kasi sila cost that are incurred after, so ibig sabihin tapos na yung product.

Generic Strategies

Strategy dapat nagmumula vision, mission, and then goals objectives.

Cost Leadership - refers to a company's ability to maintain its competitive edge by undercutting
competitor prices or by manufacturing products or providing services at a low cost.

 Para maging effective ang cost leadership ay kailangan alamin natin kung para saan ba yung
cost natin at ipasok sa pinakamababa dahil bago ka palang syempre hindi ka papasok sa market
na hindi ka pa gaanong kilala tas papasok ka ng mataas agad yung presyo mo.

Product or Service Differentiation- refers to a company's ability to offer superior quality products or
more unique services than competitors.

 So ito naman yung kabaligtaran, ang binabuy natin dito yung quality, nagfofocus tayo sa ano
bang unique sa atin. Quality means price.

Kailan masasabing successful ang isang business?

Traditionally, through its profit, mas successful but under the balance scorecard hinati siya sa apat.

Balance scorecard- is a framework that translates an organization's strategy into clear and objective
performance measures that focuses on:

 Learning Growth - focus on employee development and ability to adapt to changing customer
needs through innovations.
nakafocus sa employee because the most important asset is employees and para magkaron ng
progress, masustain, magkaron rin tayo ng to ability to adapt to changing customer needs
through innovation. Kelangan din sila alagaan para maging loyal rin sila.
 Internal business - focus on things that organization must do well to meet customer needs and
expectations.
Kailangan lagi nating naaddress yung customer needs.
 Customer Value - addresses how well the organization is doing relative to customer criteria such
as time, quality, and price.
So dito pumapasok kung naaddress yung customer criteria such as time, quality, and price.
 Financial performance - addresses the concerns shareholders about profitability and growth.
dulong indicator na, nakaperform na, nadeliver na.

The use of the balanced scorecard framework helps in evaluating strategy congruence by
understanding:

Lag - outcomes that resulted from the past actions.

Yung means of measuring performance mo ay nangagagaling sa mga bagay na outcome na tapos na.
Lead - outcomes that are planned before lag indicators are known.

napagplanuhan before the lag indicators. Example magtatransferred out na yung studyante so yun yung
lag indicators kasi yung itatanong mo yung mga nangyari na at isasagot niya mga nangyari. So para di
umabot yung studyante na magtrasfer is gamitin mo yung lead indicators, mas maganda na
pagplanuhan kung ano itatanong like ano kaya ano ang pwede niyang gawin para maging better kung
ano yung nirereklamo niya.

Comparison of Financial Accounting and Management Accounting.

Financial Accounting - involves the systematic recording of business transactions governed by

 Ang pinakaconcern neto is paggawa ng financial statements. And gagawin mo siya dahil ito ay
governed ng accounting standards, meron standard siya na gagamitin.

Management Accounting - is concerned with the providing financial operations, evaluate performance,
and make decisions to achieve organizations goals.

 Focus siya pagpoprovide ng financial info para sa management para makapag plano at yung
goal and objective is naka align, control operations while doing action, dapat we make sure na
nakafocus lang tayo sa goal and objective, evaluate performance.

Management Accounting

-For Internal User only

-Optional not mandatory

-Not follow financial reporting standards

-Timeliness

-Flexibility

- Information must be relevant, at a minimum should be reasonably estimated

- Pag nagreport dapat detalyo

- More on decision making

- There is no set date, report may be prepared at daily, weekly or monthly intervals.

Financial

- Reports are intended to external users, as well as internal users (shareholders, prospective investors,
creditors, government regulators, and managers)

-Mandatory for external reporting purposes

- Must follow financial reporting standards

-Consistency

-Information must be reliable. Objectivity and verifiability of information are emphasized.

- Siya ay nakasummarize na and presented as a whole

- Summaries in things that happen in the past

- One regular annual reporting

Basic Product Costing Systems

Job order costing - a costing system applicable to the production of customer-specified products or
special-order products completed on a per job basis. In this system, direct materials, direct labor, and
factory overhead costs are assigned to specific job orders or batches of production. Each job becomes a
cost center for which costs are accumulated. In computing unit costs, the total manufacturing costs for
each job is divided by the number of good units produced for that order.

Ginagamit ang job order sa mga production na ang basis or yung nagpupush para magproduce ay yung
customer. In a sense that customer specified or the customer na nag oorder sayo na ito yung gusto kong
product.

Kinocost yung product per job. Best example is service type of business. Hospital for example kung ano
ipapagamot mo sa doctor dipende yung bayad kung ano sakit mo, kung ano ipapatest mo. Each job
becomes a cost center so nagiging parang pinakacontrol point, dun naiipon yung cost bawat job. So
bawat job gumagamit siya ng work in process account.

Process Costing - a costing system applicable to a continuous or uniform production process of a large
number of same or similar goods where each processing department becomes a cost center. In process
costing, it is more economical to account costs of products for a period of time rather than to assign
costs to specific job orders. Unit costs are computed by dividing total manufacturing costs assigned to a
particular department during a period by the equivalent unit of production.

Since products are costed based on the time periods (such as weekly or monthly) rather than specific
completed job orders, it is more convenient to use several Work In Process Inventory accounts (for each
department) to accumulate manufacturing costs.

- ito ay ginagamit ng mga manufacturer na ang output ay continuous. So ang output nila ay pare
pareho, hindi dinidictate ng customer.

- Cost center dito ay bawat department. Sa process costing hindi pinag uusapan kung kanino kaba. Pinag
uusapan kung saan departmert ka dadaan. So bawat department may cost center. Halimbawa kung
paggawa ng kotse yan. Merong department na mag aassemble ng parts, meron din mag aayos ng
makina, at merong department na magka quality control so bawat kotse merong mga department yan
at bawat department meron yang cost, labor or material. So therefore limited ang work in process mo
doon sa department.
Hybrid or operation - a costing system that incorporates both job order and process costing systems.
This systems is used in repetitive manufacturing process where finished products have common, as well
distinguishing features. A company processing large orders or batch of identical units in a group through
the same production sequence and then places each batch in succeeding varied processes us using
hybrid costing.

- yung description ng job order or costing is iisa na. May quality ng job order at quality ng cost process.

Organizational Structure

Line Position - position that have direct responsibility for the basic objectives of an organization.

-that have direct responsibility para ma achieve yung objective ng organization. Let's say factory tayo,
sino ang may line position sa loob ng factory? syempre yung mga workers or assembly line workers na
nandon kasi kung wala sila pano makapagpoproduce ng product yung factory diba?

Staff Position - sila yung may supportive role and their positions are necessary para makatulong sa mga
nasa lines position para ma achieve yung goal ng company. (nasa clinic, maintenance, registrar)

Differentiation : Ang Accountant ang role ng accountant siya ay staff kung ang pag uusapan is whole as
a business pero pwede din siyang maging line position dahil part siya ng accounting department. Sa
isang accounting department merong chief accountant tapos may 4 na under sakanya and yung apat na
yan under line position din kung ang usapan ay only within sa accounting department.

Key Financial Managers

1. Chief Financial Officer- manages the entire finance and accounting functions.

Ito yung pinakamatas aside from being a president. And dalawa yung hawak or under sayo dito dahil
meron kang finance and accounting functions. Finance has something to do with treasury, protection of
assets pag sinabi nating finance. Accounting, record keeping.

2. Treasurer - Manages company's financial assets; acts as an asset custodian: liaises with financial
intermediaries.

So kung ikaw ay treasurer under ka dito. You're the one who manages a company's financial assets act
as an asset custodian. So ikaw yung nakikipag usap sa bangko, nakikipagkontrata tayo .

3. Controller or Chief Accounting Officer - determines accounting policies, designs accounting

- Ang problema mo ay mag design ng accounting information system, maintain accounting records,
supervises accounting department.

4. Internal Auditor - ensures compliance with laws, regulations and company policies and procedures.
- hindi siya directly reporting sa chief Finance officer, ito ay parang lumalabas mata ng board kasi siya
yung nagrereport sa board of directors.

5. Cost Accountant- performs cost accounting functions.

Statement of Ethical Professional

1. Competence

a. Maintain an appropriate level of professional expertise by continually developing knowledge and

To enhance your competent, you must maintain an appropriate level of professional expertise by
continuing developing knowledge and skills. And paano ba nadedevelop ang knowledge and skills?
Continues yung pag attend natin sa mga seminar, workshop, activities. And sa batas sa accountancy
kailangan kumpleto kayo sa CPE.

b. Perform professional duties in accordance with relevant laws, regulations, and technical standards.

Bilang isang accountant, you must perform professional duties in accordance with relevant laws,
regulations, and technical standards. You must comply to enhance competence.

c. Provide decision support information and recommendations that are accurate, clear, and concise.
At kapag naman nagbigay ka ng information or suggestion, yung information must be relevant,
accurate, clear, and concise and timely.

d. Recognize and communicate professional limitations or other constraints that would preclude
responsible judgement or successful performance of an activity.

And sa competence hindi lang puro tungkol sa kagalingan, kailangan din dito if ever na there is distinct
limitation on your part kapag halimbawa nakikita mo na magkakaroon ng conflict of interest or hindi mo
magagawa yung isang bagay kasi incompetent ka don, be have a courage na sabihin mo na
incompetent ka sa area na yon para atlis yung client mo makahanap ng iba.

2. Confidentiality

a. Keep information confidential except when a disclosure is authorized or legally required.

- To enhance confidentiality, we must confidential enough na ano mang secret whether financial or
economical man yan na madidisclose ng kliyente natin sa atin, naghohold dun yung trust na hindi natin
ipagsasabi or ipagkakalat. Pero may exception, except when disclosure is authorized or legally required.

b. Inform all relevant parties regarding appropriate use of confidential information.

Another way to enhance confidentiality is always inform lalo na kung ikaw yung head, always inform all
relevant parties regarding appropriate use of confidential information. So lahat ng interested parties
aware sila kung meron kang papasahan ng ibang information. Halimbawa lalampas na sa kamay mo
yan, pupunta na sa ibang department. Always make a notation that this is a confidential information.
c. Monitor subordinates activities to ensure compliance.

And kung meron naman na mas mababa sayo na mapapasahan, monitor mo yung performance nila
because you will be responsible if ever na sakanila lumigwak yung confidential information pati ikaw
damay ka dyan.

CHAPTER 2: COST TERMS, CONCEPTS, & BEHAVIOR

NOTE: NO PRODUCT OR SERVICE CAN BE PRODUCED WITHOUT THE INCURRENCE OF ANY COST.

WHAT IS COST?

Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a
current or future benefit to the organization. Cost is a monetary measure of resources consumed to
attain an objective.

 Costs that are used up in the production of revenues are called expired costs or expenses.
 A loss is a cost that expires without producing any benefit.
 A cost that is unexpired in a given period is classified as asset.
 A cost object is any product, service, customer, activity, or organizational unit to which costs are
assigned. A meaningful group of costs is called cost pools.
 A cost driver is any factor that has the effect of changing the level of total cost.

CLASSIFICATION OF COSTS

As to traceability…

a. Direct costs – costs that can be traced easily, conveniently, and accurately to a cost object.
b. Indirect costs – costs that cannot be traced easily, conveniently, and accurately to a cost object.
Instead, these costs are allocated to cost objects.

As to timing of recognition…

a. Product (or Inventoriable or Manufacturing costs) costs - are costs associated with
manufacturing goods. These costs include direct materials, direct labor, and manufacturing
overhead. Initially, product costs are assigned to inventory accounts and presented in the
Statement of Financial Position. When goods are sold, the costs are released from Inventory as
expenses (cost of goods sold) and matched against revenue. Product costs are expensed when
the completed products are sold.
b. Period (or Non-inventoriable or Non-manufacturing) costs – are costs associated with selling and
administrative functions. These costs are expensed outright when they are incurred and
presented in the Income Statement.

As to management function…

a. Direct materials – raw materials that can be economically traced to and become an integral part
of the finished product.
b. Direct labor – all labor costs from the time spent on manufacturing that can be economically
related to specific units produced.
c. Manufacturing overhead (or Factory Overhead or Factory Burden) – all other manufacturing
costs, except direct materials and direct labor. It includes indirect materials or manufacturing
supplies and indirect labor.

The sum of direct materials and direct labor is called prime cost.

The sum of direct labor and manufacturing overhead is called conversion cost.

d. Marketing or distribution costs – all costs associated with securing customer orders, selling and
distributing the products to customers.
e. Administrative or general costs – all costs associated with clerical, organizational and executive
costs.

As to type of inventory…

a. Raw materials inventory – cost of all raw materials and production supplies that have been
purchased but not used in production at the end of the accounting period.
b. Work in process inventory – cost associated with partially completed goods at the end of the
accounting period. Cost is transferred out from inventory when goods are completed (as cost of
goods manufactured).
c. Finished goods inventory – cost of completed goods (cost of goods manufactured) that have not
been sold at the end of the accounting period. Cost is transferred out from inventory when
goods are sold (as cost of goods sold).
d. Merchandise inventory – cost of purchased merchandise by retailers/wholesalers that gabe not
been sold at the end of the accounting period.
CLASSIFICATION OF COSTS

As to level of management commitment…

a. Committed costs – costs that resulted from inevitable consequences

As to level of management influence

a. Controllable cost – cost that is subject to significant influence by a particular manager

As to terms used in planning, control and decision-making…

a. Standard costs – are predetermined costs of materials, labor and overhead, expressed as costs
per unit.
b. Budgeted costs – are expected or planned costs expressed as total costs for given period.
c. Absorption costing – a costing method that includes all manufacturing costs in computing the
cost of a unit of product, it is also referred to as full or traditional costing.
d. Direct costing – a costing method where fixed manufacturing costs are charged directly against
revenue or expensed outright and are not assigned to units manufactured, it is also referred to
as variable costing.
e. Opportunity cost – the value of the benefit given up or foregone when one alternative is chosen
over another. It is not recorded in the accounting books.

As to terms used in planning, control and decision-making…

a. Sunk costs – past costs that gave been incurred and are considered irrelevant for future
decisions.
b. Relevant costs – are future costs that differ across choices or decision alternatives.
c. Differential costs or marginal costs – costs that are present under one alternative but are absent
in whole or in part under another alternative. An increase in cost is called incremental cost,
while a decrease in cost is known as decremental cost.
d. Value-added costs – costs that add value to the product by satisfying the requirements of the
customers.
e. Out of Pocket cost – cost that must be met with an immediate outlay of cash.

As to cost behaviour…

a. Variable costs – costs that change in total, directly in proportion to changes in activity or volume
of production within the relevant range.
b. Fixed costs – costs that remain unchanged or constant in total for a given time period regardless
of change in activity or volume of production within the relevant range.
c. Mixed costs or semi-variable costs – cists that contain both fixed and variable elements.

Relevant range is the range of activity within which assumptions relative to cost behaviour are valid.