| NORMA D. DE LEON ELLERY D. DE LEON GUILLERMO M. DE LEON JR.GSP “ : | ‘ : 5 COST ACCOUNTING AND CONTROL 2019 Edition NORMA D. DELEON BSC, CPA, MBA CPA REVIEWER Professional Review and Training Center, Inc. (PRTC) FACULTY MEMBER La Consolacion College — Manila San Beda College ELLERY D. DELEON BSC, CPA, MBA CPA REVIEWER Professional Review and Training Center, Inc. (PRTC) 2 - al School of Business _ ABE Internations FACULTY MEMBER ional, School of ‘Business ‘ABE Internati E jon College — Manila La Consolae versity National Uni GUILLERMO M- DELEON, RR BSC, CPA, MBA CPA REVIEWER ae Professional Review and Trainin Centers ne (PRTC) 1 1A Review School of the Philippines (CPAR) Formerly — Universi of the East Center for Review & Stu dies (UECRSS) FACULTY MEMBER : La Consolacio® College - ManilaPREFACE This text is designed for a dual purpose. First, it is intended to introduce undergraduate cudents to the financial aspects of Cost ‘Accounting. Second, it is organized to serve the needs of reviewees for the CPA board. examinations in Advance: Sleep uaated and Reporting (AFAR) The discussions and illustration are focused not only on product costing — cost accumulation and cost allocation but also on the managerial uses of cost accounting information. Major discussions are on such topics as job order costing, process costing, joint-products, and standard costing, all of which adequately illustrate concepts and procedures in cost accumulation and cost allocation. Also now included are a discussion of Just=in=T ime technology, Activity Based Costing and Cost Volume Profit analysis ‘All three types of business organizations need cost accounting + for decision-making functions. However, manufacturing ganizations offer a more intricate network of cost P cedures that it 1s chosen as basis for much of the discussions. serve the needs of CPA reviewees, materials often tested 10 the board examinations are adapted. Some items are also taken 0 other | published sources to , bring added comprehensiveness with the problem-solving exercises. It is made veain that concepts addressing these varied accounting situations ie found jn the text to allow self-instructional learning methods ffort will serve the needs of interested’ users. It is hoped this little ¢! NDL, EDL & GDLTABLE OF CONTENTS Chapter 1— INTRODUCTION TO COST ACCOUNTING Definition 1 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 COST ACCOUNTING CYCLE 51 Chapter 3- . Parts of Cost of Goods Sold Statement Preparation of Cost of Goods Sold Statement Preparation of Financial Statements Chapter 4- COST VOLUME PROFIT ANALYSIS o1 Definition ’ Computation of Break -even sales (units). Computation of Break-even sales (pesos) Margin of Safety Degree of Operating Leverage Chapter 5 ~ JOB ORDER COSTING a ‘Job Cost Sheet, . 115 Source Documents for Job Order Costing Accounting Procedures for Materials ‘Accounting Procedures for Labor ‘Accounting Procedures for Factory Overhead 1 6— JUSTIN TIME AND BACKFLUSH ACCOUNTING. 1 61" Definition Characteristics of Just in Time Operation of JIT System G FOR MATERIALS 173 of Materials Control ; f Costing Materials for Defective Units for Spoiled Units Chapte Chapter 7 ACCOU Objective Methods 0! Accounting AccountingChapter 8— ACCOUNTING FOR. Definition FACTORY OVERREAD Chapter 9 Chapter 9 Chapter 10 Chapter 11 Chapter 12 ACCOUNTING FO} Account RLABOR Computation of Payroll and Net Pay Sompitation of Employer's Payot \ccounting for Labor Cost ad PROCESS cog CESS COSTING Characteristics of P . Cost of Production Revs StS Samet ion of Equi Method. utation of Unit re tion tation of Cost Allocat jon a Accounting Metheg® ot Main Pro Replacement Cones "BY Prog 27 257 273 316 361 —_—_— Sees Chapter 1 eee 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 us¢s 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 entity to différent 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 necessary 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 cooperation of business and industry. In order ta 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 concerned 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ck Cost Accounting between the two: merchandi two: merchandiser, such resold to their customers 2 Such as SM buy items i they sell, Once the merchanisp sh as PEILACOR wnattole a oi make the gi ready to ‘carry out th 8 organization has acqy j : at manicure, howeyey ae finan ye ed and stored goods iti CY 2) . () nhAccouncing od a neial 2c. ing ( tet iano for reporting #9 Ses tse by ytecounting is pm ds 12 interes: 88° Who supply FU jos Under ae at, on, is bases ang ite ofthe pli gt ti quant ont tease the fooyyt in th fal opera! ati Srey te ore ho anal he oe of Om "8 (the f nd le owners OC” is wn eae PPrictors. Credit tis. Wine 28 Yet MS Of the entity: ed ide Ma * Financial accoU" Mea yy hidtoriggt May be history oi) 84 are supporter unting is usu! Chapter 1 Introduction to Cost Accounting 3 presented in the form of financial statements, tax returns, and other formal reports distributed to various. external users. The same information may also be used internally to provide a basis for financial analysis by management. Financial accounting is required for many firms organized as corporations because of the requirements of the Securities and Exchange Commission. The Bureau of Internal Revenue also requires financial accounting information for compliance with the country’s tax laws. Information based on accounting data is required for all firms without regard to their size. Managerial accounting focuses on the needs of parties within the organization, rather than interested parties outside the organization. Managerial accounting information commonly addresses individual or divisional concerns rather than those of the enterprise as a whole. The information may be current or forecasted, quantitative or qualitative, monetary or non-monetary and most of all timely the data are futuristic and some of the costs are not recorded on the accounting books of the organization Managerial accounting is not separate and distinct from financial accounting. Financial accounting data are used in the managerial accounting system. Management decisions made today will affect the financial statement of future periods. There is no requirement or legislation that mandates the format or use of managerial accounting. Managerial accounting methods are tools that are available for use to management. Financial accounting attempts to present some degree of precision in reporting historical information while at the same time emphasizing verifiability and freedom from bias in the information, relevance to the general user and some degree of timeliness in reporting which is not as critical in managerial accounting. The timing of information and its relevance to the decision on hand has greater significance to the internal decision-maker. Management is more concerned on the timeliness of the information so management cannot wait until tomorrow for information that is required for today’s decision, The measuring based in managerial accounting does not necessarily have to be estricted to pesos. Various bases may be appropriate to report managerial information, Examples include: (1) an economic measure such as pesos; (2) a physical measure such as pounds, gallons, tons, or units; and (3) a relationship measure such as ratios..