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Chapter 1 Introduction To Cost Accounting

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Chapter 1 Introduction To Cost Accounting

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Donna Zandueta
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© © All Rights Reserved
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GUILLERMO M. DE LEON JR. NORMA D. DE LEON COST ACCOUNTING 2012 Edition GUILLERMO M. DE LEON, JR. AB, BSC, CPA CPA REVIEWER Professional Review and Training Center, Inc. (PRTC) Formerly: CPA Review School of the Philippines (CPAR) University of the East Center for Review & Special Studies (UECRSS) FACULTY MEMBER Far Eastern University NORMA D. DE LEON BSC, CPA CPA REVIEWER Professional Review and Training Center, Inc. (PRTC) FACULTY MEMBER De La Salle University Far Easter University La Consolacion College of Manila San Beda College University of Santo Tomas Philippine Copyright, 2012 COST ACCOUNTING BY GUILLERMO M. DE LEON, JR NORMA D. DE LEON Any copy of this book not bearing the signature of the authors ‘on this page is unauthorized and shall be considered as coming from an illegal source. Mbde~ All Rights Reserved ISBN 974-9919-08-7 Published & Printed by: GIC ENTERPRISES & CO., INC. 2019 C.M. Recto, Manila Philippines TABLE OF CONTENTS Chapter 1 - INTRODUCTION TO COST ACCOUNTING 1 Definition Scope of Cost Accounting, Objective of Cost Accounting Uses of Cost Accounting Data Recent Developments in Cost Accounting Chapter 2- COSTS CONCEPTS AND CLASSIFICATIONS: 19 Definition Classification of Costs Cost Formulas Chapter 3— COST ACCOUNTING CYCLE 53 Parts of Cost of Goods Sold Statement Preparation of Cost of Goods Sold Statement Preparation of Financial Statements Chapter 4— JOB ORDER COSTING 1 Job Cost Sheet Source Documents for Job Order Costing ‘Accounting Procedures for Materials Accounting Procedures for Labor Accounting Procedures for Factory Overhead Chapter S- JUSTIN TIME AND BACKFLUSH ACCOUNTING 145, Definition Characteristics of Just in Time Operation of JIT System, Chapter 6 - ACCOUNTING FOR MATERIALS, 157 Objectives of Materials Control Methods of Costing Materials Accounting for Defective Units Accounting for Spoiled Units Chapter 7- ACCOUNTING FOR FACTORY OVERHEAD Chapter 8 Chapter 9 Chapter 10 Chapter 11 ‘Chapter 12 Definition ‘Computation of Factory Overhead Rate Allocation of Service Department Cost Activity-Based Computation of Factory Overhead Variance ACCOUNTING FOR LABOR Wage Plans Computation of Payroll and Net Pay Computation of Employer's Payroll Taxes Accounting for Labor Cost PROCESS COSTING Definition Characteristics of Process Costing, Cost of Production Report Product Flow Comparison of Job Order and Process Costing AVERAGE AND FIFO COSTING Differences between FIFO and Average Characteristics of FIFO costing method Characteristics of Average costing method Computation of Equivalent Production Computation of Unit Cost Computation of Cost Allocation: JOINT PRODUCTS AND BY-PRODUCTS Joint Costs ‘Characteristics of Main Products Characteristics of By-Products Accounting Methods f.. lain Products “Accounting Methods for By-Products Replacement Cost Method STANDARD COSTING Definition ‘Nature of Standard Costs Purposes of Standard Costs ‘Types of Variances. Computation of Variances Entries to record different variances 261 32 Chapter a INTRODUCTION TO COST ACCOUNTING LEARNING OBJECTIVES Upon completion of this chapter, you should be able to: ‘+ Distinguish between financial, managerial, and cost accounting © Distinguish between merchandising and manufacturing operations Identify the uses of cost accounting data ‘* Distinguish between job order costing and process costing The main and primary objective of accounting is to provide financial information about an economic cntity to different types of users. First we have internal users ~ managers for planning, controlling and decision making. Then we have external users ~ the government, those who provide funds and those who have various interests in the operations of theof the entity Cost Accounting is an expanded phase of general or financial accounting which informs management promptly with the cost of rendering a particular service, buying and selling a product, and producing a product. It is the field of accounting that measures, records, and reports information about costs. All types of business entities - manufacturing, merchandising, and service businesses - require information systems which provide the neceseary financial data. Because of the nature of the manufacturing process, the information systems of ‘manufacturing entities must be designed to accumulate detailed cost data relating to the production process. Thus, it is common today for small, medium, and large ‘manufacturing companies to have structured costs accounting systems. These ‘systems should show what costs were incurred and where and how these costs were utilized. Cost accounting today is recognized as being essential to efficient ‘cuoperation of business aud industey. In order to appreciate the importance of an efficient cost system, it is necessary to understand the nature of the manufacturing process. In many ways, the activities of a manufacturing organization are similar to those of a merchandising business. Both are concemed with purchasing, storing, and selling goods; both must have efficient management and adequate sources of capital; both may employ hundreds or thousands of workers In the manufacturing process itself, we see the distinction z Cost Accounting between the two: merchandisers, such as SM buy items in marketable form to be resold to their customers, manufacturers, such as PHILACOR, must make the goods they sell. Once the merchandising organization has acquired and stored goods, it 1s ready to carry out the marketing function. ‘The purchase of materials by a ‘manufacturer, however, is only the beginning of a long, and sometimes complex,

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