Cost Accounting Reviewer 1.

​ Direct Materials – Raw materials

- A cost accounting system is designed to used in production.
accumulate, measure, and design costs 2.​ Direct Labor – Wages paid to
to cost objects, such as products or workers directly involved in
services. The main goal is to provide production.
accurate cost information for 3.​ Overhead – Indirect costs such as
decision-making. utilities, rent, and maintenance.

Cost Assignment Methods of Cost Measurement

1. Direct Tracing - Identifying costs directly
linked to a specific product or . service. There are two primary ways to measure
costs:​
2. Driver Tracing – Using cost drivers (e.g., Actual Costing
machine hours) to allocate costs based on
usage. ●​ Uses actual costs for materials,
labor, and overhead.
3. Allocation – Distributing costs based on ●​ Problem: Overhead costs fluctuate,
arbitrary methods (least accurate). leading to inaccurate unit costs.

Note: Allocation should be minimized for Normal Costing

more precise cost assignment.
●​ Uses actual costs for direct materials
Cost Accumulation and labor but applies overhead
using a predetermined rate.
Cost accumulation refers to recognizing ●​ More stable and widely used for
and recording costs as they occur. It accurate cost tracking.
involves: ●​ Any difference between actual and
applied overhead is treated as an
●​ Using source documents (e.g., overhead variance.
sales receipts, labor time tickets) to
track costs.
●​ Storing data in a database for
flexibility in decision-making and After accumulation and measurement, cost
reporting. must be assigned to products/services. The
●​ Ensuring relevant costs are recorded unit cost is calculated as:
in the general ledger for financial
reporting.

Cost Measurement

Once costs are accumulated, they must be

classified and measured to determine
product costs. The three main cost
components are:
Types of Costing Systems

Management accountants use two basic

costing systems to assign costs to products
or services:

1. Job-Order Costing

●​ Costs are accumulated per job.

●​ Each job uses different amounts of
resources and is treated as a
unique unit.
●​ Common in industries like:
○​ Printing Job-Order Costing System:
○​ Construction Documentation and Procedures
○​ Furniture making
○​ Automobile repair 1. Materials Requisition Form
○​ Beautician services
●​ A source document used to assign
Cost Accumulation in Job-Order Costing the cost of direct materials to a
specific job.
●​ The cost accountant records and ●​ Ensures that materials used are
tracks costs using source properly recorded and linked to the
documents. job.
●​ A source document is an original
record that supports journal entries
(e.g., labor time cards, sales
receipts).
●​ Data from source documents are
stored in a database, which allows
for:
○​ Flexibility in decision-making.
○​ Accurate financial reporting.

Job-Cost Record (Job-Cost Sheet)

●​ A job-cost record accumulates all

costs assigned to a specific job from
the start of work. 2. Time Ticket (Labor Time Card)
●​ Used to track direct materials,
direct labor, and overhead for each ●​ A source document used to assign
job. direct labor costs to specific jobs.
●​ Employees fill out time tickets
whenever they work on a job.
 ●​ Collected daily and transferred to ●​ Absorbed by Good Units – The
the cost accounting department cost of normal spoilage is included in
for recording. the cost of successfully produced
goods.
●​ Part of Business Costs – Since it is
expected, companies factor normal
spoilage into their production
budgets and pricing strategies.

Example (Specific Job)

Normal Spoilage attributable to a specific

job #101 has a total cost of 10,000 for 1,000
units. 50 units are spoiled, but they have a
salvage value of P2 each. Normal Spoilage
is expected.

Job Order Costing and Spoilage Cost of Spoiled Unit - 50 x 10 (10,000 /

1,000) = 500
Spoilage - refers to units of product that are
damaged or defective during the Salvage Value - 50 x 2 = 100
production process and cannot be sold as
finished goods without further processing. Net Cost of Spoilage - 500 - 100 = 400

Cost of the Good Unit - 10,000 + 400 =

10,400
Key Principles of Job Order Costing and
Spoilage Number of Good Unit - 1,000 - 50 = 950

1. Assign Costs to Specific Jobs - Unit Cost of Good Unit - 10,400 / 950 = 11
Spoilage costs need to be assigned to the
Journal Entry:
specific job that generated the spoiled units.

2. Distinguish Between Normal and

Abnormal Spoilage:

Normal spoilage refers to the unavoidable

loss of materials or products during the
production process. It is expected and
considered a natural part of manufacturing.

●​ Inherent in Production – Normal

spoilage happens due to factors like
machine inefficiencies, material
defects, or process limitations.
Other Example (Common to All Jobs) unusual factors such as equipment failure,
human errors, or defective materials.
Normal Spoilage Common to All jobs total
manufacturing costs are P50,000. Normal ●​ Unexpected & Unusual – Unlike
Spoilage of 5% is expected. Total units normal spoilage, this is not a regular
produced are 10,000. Salvage value per part of production.
spoiled unit is P3. ●​ Caused by Avoidable Factors –
Examples include machine
10,000 x 5% = 500 breakdowns, operator mistakes, and
poor-quality raw materials.
Cost of Spoiled Unit - 500 x 5 (50,000 / ●​ Recorded as a Separate Loss –
10,000 = 5) = 2,500 The cost of abnormal spoilage is not
included in the cost of goods
Salvage Value - 500 x 3 = 1,500
produced. Instead, it is reported as a
Net Cost of Spoilage - 2500 - 1,500 = period expense (loss) on the income
1,000 statement.

Cost of the Goods Unit - 50,000 + 1,000 = For Example:

51,000
Abnormal Spoilage job #202 has a total cost
Number of Good Units - 10,000 - 500 = of 15,000 for 500 units. 40 units are spoiled
9,500 due to a machine malfunction (abnormal).
Salvage value is P5 per unit.
Unit Cost of Good Units - 51,000 / 950 =
5.37 Cost of Spoiled Unit - 40 x 30 (15,000 /
500 = 30 = 1,200
Journal Entry:
Salvage Value - 40 x 5 = 200

Loss from the Abnormal Spoilage - 1,200

- 200 = 1,000

Cost of Goods Unit - 15,000

Number of Goods Unit - 500 - 40 = 460

Unit Cost of Good Unit - 15,000 / 460 = 33

Abnormal Spoilage

Abnormal spoilage refers to unexpected

and avoidable product losses caused by