Cost Accounting

Session 1 - Introduction
2024/25
 Course outline

• Introduction

• The Budget approach

• Key concepts of Cost Accounting (also referred to as “Management

Accounting”): definition and types of costs

• Costing methods and their decision-making context

1- Cost-Volume-Profit (CVP) analysis

2- Full cost method

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 Course planning
Session Topics Applications- Instructions for students
1 Introduction to the course: guidelines and types of What cost?
work/evaluation – Introduction to key concepts Deluxe Paintings (introduction)
2 MCQ1 at the beginning of the class (Key concepts) Madeleine
The Budget approach(1) Optima (start and finish it as personal work)
3 MCQ1 Correction Optima (correction)
The Budget approach(2): Exercises Optima (correction) and Lodurin
Lodurin
4 MCQ2 at the beginning of the class (the Budget approach) Toquedor
CVP analysis (1st part)- Support : Case ‘fil rouge’ Jardiland
5 MCQ2 correction Jardiland (following)
CVP analysis (2nd part)- Support: Case ‘fil rouge’ Industrial company
Teachers: Provide the groups on C@mpus before Session 6

6 Board game - ¾ h NO COMPUTER !

Group work graded – Imposed groups – 1,5h- on paper Calculator fx 92 or 92 + OBLIGATORY
format
7 MCQ3 at the beginning of the class (CVP analysis) Deluxe Paintings
Full cost method – Support: Case ‘fil rouge’ FMC (to be completed for Session 8)
8 MCQ3 correction FMC (solution) and INDU
Full Cost Method- Cas FMC Solution
Full Cost Method- INDU Teachers : Provide the groups on C@mpus before Session 9
9 MCQ4 at the beginning of the class (Full cost) Make sure you are on time. Being late is not accepted, once the
Individual work graded (CVP analysis and full cost method door is closed. Grade of 0 in case of absence noted. NO
–on paper format COMPUTER! Calculator fx 92 or 92 + OBLIGATORY
Prepare your questions for Session 10.
10 MCQ 4 Correction Answers to revision questions.
Exam revision Individual case correction (Session
I 149)février
and Budget
2025 revision
I case. 3
Cost Accounting
 Sustained work throughout the module

• Your teacher may ask you to prepare the applications for the next session.
Your work may be selected for verification. All corrections will be submitted
to C@mpus at the end of the course week.

• 4 tests of personal work will be carried out in the form of automated MCQ:
sessions 2, 4, 7 and 9

• In Session 6 : Board Game and Group case study graded

• In Session 9 : INDIVIDUAL case study graded

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 Sessions 2, 4, 7 and 9- MCQ

• On C@mpus

• In class and in the presence of your teacher. Any remote connection will be noted
as absent, which is equivalent to a score of 0 and recorded as ABSENCE. An
attendance check to control attendance will be made before the MCQ.

• At the beginning of the class: Make sure you are on time! If the room door is
closed, you will have to wait until the break to enter the class. You will be
considered absent and your grade for the MCQ will be 0.

• 5 questions; Duration: 6 minutes

• Information: +1 point for good answer; no negative points for wrong answer

• Computer required. It will be prohibited from use after the MCQ.

• No mobile phones. Calculator fx 92 or Fx 92 + OBLIGATORY.

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 Session 6

• Topic: CVP Analysis

Board Game Case Study
Groups of 3 students of balanced level. Same groups as for the board game
Imposed by your teacher.
Duration: ¾ h maximum Duration: 1,5 h maximum
Bonus on the case study grade of On paper format
Session 6

• You will only succeed in the job if you have worked regularly and have a
collaborative attitude within your team.

• Break of max. 10 minutes after the board game. To be strictly respected.

• COMPUTER PROHIBITED

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 Session 9

 Session 9 : Case study to be completed individually ! GRADED. ON

PAPER FORMAT. COMPUTER PROHIBITED. Do not forget your calculator
fx 92 or fx 92 + !

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 Summary of evaluation methods

• Average of continuous assessments : 40%. A good/bad behavior of +2/-2 can

affect your average.
Average of the 4 MCQ : 1/3
Individual case study : 1/3
Group case study : 1/3
No possibility of retakes for continuous assessments !
In case of plagiarism : grade of 0 for all groups and students concerned
Reminder of absences policy : grade of 0 in case of absence from continuous
assessments.
• Final Exam : 60%.

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 Work instructions

• Computer FORBIDDEN except for MCQ tests

• Calculator obligatory for all courses : Casio fx 92 Collège /

Casio fx 92 +

• Mobile phone prohibited, unless expressly authorised by your

teacher.

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 Business Game at the end of the semester (April 2025)

• 2-day game session

• Business management situation

• Using marketing and accounting knowledge to understand business

interactions

• Knowledge application from the accounting courses : calculation of

projected production costs, break-even analysis, cash budget, profit
and loss account and balance sheet …

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 Any questions ?

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A.
What is Cost
Accounting ?
 What are the responsibilities of a manager ?

To manage performance:
1- Planning : set objectives and determine the action plans to achieve
them

2- Directing: overseeing day-to-day operations and action plans

3- Controlling : evaluate results and compare them to the objectives,

explain discrepancies/deviations

4- Decision-making : Make corrective action decisions, i.e., review the

strategy and redefine the objectives, adjustment of action
Cost Accounting
plans
I 14 février 2025 I 13
 It is based on a tool : Cost Accounting

To manage performance, managers must control their budgets and costs.

Cost Accounting (or “Managment Accounting”) provides managers with the

methodological tools to determine a cost that is relevant to the decision-
making context :

• Implementation of a financial and non-financial information system to

measure and help managers to make decisions

• Using the analysis of the past to project into the future

The goal of this course is to define and present the main costing and
budgeting approaches, emphasising their usefulness and limitations

The distinction between Cost Accounting and Management Accounting is not

clear
Cost cut and we use these terms interchangeably.
Accounting I 14 février 2025 I 14
B.
Management
Accounting
vs Financial
Accounting ?
 Users are different !

State
Shareholde services
rs
Financial Accounting =
external Suppliers
Financial
institutio Customers
ns

Manager Employee
Management
s Accounting s=
managerial = internal
Directors
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 Time frame of reported information is different

Financial Accounting Management Accounting

Relates to the past, Relates to the

historical present and
forward-looking

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 The frequency of information is different !

Financial Accounting Management Accounting

Yearly Daily, weekly,

monthly

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 The scope is different !

Financial Accounting
Management
Accounting

Detailed departments,
divisions, products, … and
Global, for the global
organisation as a whole
Oriented towards
particular decisions and
actions
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 There are no regulations in Management Accounting !

Financial Accounting
Management
Accounting

Each company defines

the information system
IFRS, PCG that meets its strategic
and operational needs

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 The nature of information is different !

Financial Accounting Management Accounting

Objective, accurate, More subjective, uses certain

reliable, systematic judgments (relevance,
accuracy, timeliness)

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 Summary
Financial Accounting Management Accounting

Users External: shareholders, bankers, Internal: leaders, managers

fiscal, ….
Goal Inform third parties about performance Inform internally for decision-making.
and assets.
Time frame Deferred, historical. Relates to the present and the future.

Constraints Regulated information No regulation. System and information to meet

strategic and operational needs.

Type of Financial, operational and physical measures of

information Measures only financial. processes, technologies, suppliers, customers and
competitors.

Nature of « Objective », verifiable, reliable, More subjective, uses some judgment (relevance,
information systematic, accurate. accuracy, and timeless).

Scope Very general, covers the organisation Detailed, oriented towards particular decisions
as a whole. and actions.
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C.
Introduction to Costs
 Why do you think costs are calculated?

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 Calculation and analysis of costs: Why ?

•To calculate sales price

•To understand the profits of a product, service,

geographical region, sales store …
•To evaluate inventory

•To determine standard costs

•To measure performance

•To understand the internal functioning of a company

•To make decisions about how to improve performance

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 Let’s take a product

List the costs associated with this product

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 Different costs for different purposes !

• Costs are calculated and used for a specific reason

• The reason to determine costs affects the calculation

method

• 2 main calculation methods:

• Cost-Volume-Profit (CVP) analysis

• Full cost method

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Definition and types of
costs
 What is a cost ?

• Monetary value of the resources consumed to perform a service

Example of resources : raw materials, labour, marketing, money.

• A cost is an accumulation of expenses on a product/service (cost

object)

• A cost is an opinion that only makes sense if it is

supported/justified

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 Characteristics of a cost

Characteristics
Definition
Scope(cost purpose)
A cost object is defined as any item for which a separate cost

measure is considered useful

Ex.: product completed, customer segment, etc

Its moment/time of calculation

An actual cost is a cost calculated ex-post from the expenses
that have been incurred.
A standard cost is a budgeted/projected cost based on standards
and can be an objective
Its scope and content The scope of the cost consists of all the expenses that one
chooses to take into account for its calculation

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 Example of cost objects

Cost object Examples

An activity Repair service, recruitment, training

A product Computer, car, yoghurt

A department Accounting, human resources, factory,

commercial services, marketing

A project Designing a house, building a bridge

A geographical region A city, region, country, continent

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 Types of costs

Behaviour in relation to the

activity level
Variable Fixed
Causal link to Direct
the cost object
Indirect

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 Attachment of expenses: direct cost vs. indirect cost

•The direct cost of a cost object consists of all the expenses

that can be unambiguously assigned to it

Ex.: the cost of wood needed to make a table

•The indirect cost of a cost object refers to a resource consumed by

several objects

Ex.: the salary of a foreman responsible for supervising several products.

Common therefore to all products. It must be broken down by product

according to a distribution basis.

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 1. A cost may be direct or indirect. It depends on the cost
object.
Ex: The salary of the manager of Plant A, which produces
several types of products P1, P2, P3
• Is an indirect cost if the cost object is P1.
• Is a direct cost if the cost object is Plant A.

2. Total cost = direct cost + indirect cost

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 Examples of direct cost and indirect cost

Activity of the Cost object Direct cost Indirect cost

company
Hair salon Individual hairdressing Time valued in € of the Rent, electricity, insurance,
service hairdresser products used,
administrative expenses

Parcel delivery Parcel delivered Supplies used (cardboard, Delivery men

envelopes, labels) Maintenance, insurance and
depreciation of transport
equipment
Administrative expenses
Jeans sales store Jean Purchase price of jeans, Rent, electricity, insurance,
commissions paid to the store maintenance,
vendors administrative expenses

Computer manufacturer Computer Cost of purchasing Production supervision, rent,

components, cost of other plant expenses,
assembling workers quality control expenses,
administrative expenses

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 Cost behaviour: variable cost vs. fixed cost

• A cost is variable when its overall amount •A cost is fixed when it is not affected by

changes proportionally with changes in the changes in the level of activity, for a given

level of activity time period and relevant range of activity

Ex.: the cost of wood needed to produce Ex.: the rent of a store
wooden tables Rent is fixed for a given area.
Cost of wood to produce tables If the area increases, the rent increases.
= quantity of wood (which depends on the number of

tables to produce)

x unit cost of wood The fixed costs increase in stages.

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 Example of variable costs

Cost object Variable costs Variability factors

Product manufactured Material consumption Number of units produced

Training Salaries of trained staff Number of hours of training

Machine Energy Number of hours of

machine operation

Product sold Sales commissions Number of units sold

Or Revenue (i.e. Sales)

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 Example of fixed costs

Cost object Fixed costs Saturation criteria level

Product Depreciation of Quantities produced

manufacture machines Product diversity and
d complexity
Costs of production
workforce
Product sold Fixed salaries of Quantities sold
salespeople Number of customers

Rent stores

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 Graphical representation of a variable cost

Total
variable
cost

Activity level

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 Variable cost (VC) behaviour

It is the total amount of VC that changes according to the level

of activity :
Total VC = Quantity x VCu
• The variable cost per unit VCu is constant !

Example :

Purchase price of a t-shirt = 10 €/unit

Purchase amount and value:

Purchase of 200 t-shirts : 200 x 10 € = 2 000 €

Purchase of 300 t-shirts : 300 x 10 € = 3 000 €

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 Graphical representation of a fixed cost (FC)

For a store sales capacity of 100 000 €, Fixed

costs = 30 000 € (rent, energy, publicity, fixed
salaries of vendors, administrative
expenses,..). Whether the store sell nothing,
Fixed cost
sells 50 000 € or 100 000 €, the FC are always
30 000 €

If you buy a 2nd store with the same sales

capacity, the possible maximum activity levels
become 200 000 €. The fixed costs increase to
60 000 €, whether the stores sells 0 €, 50 000
€, 100 000 €, 150 000 € or 200 000 €

Activity level

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 Fixed cost (FC) behaviour

 For a given activity capacity, the fixed costs do not

change.

Ex : Production capacity: 100 000 units

Fixed cost: 30 000 €

 In contrast, the fixed cost per unit FCu is variable.

o Number of units produced = 30 000
FCu = 30 000 €/30 000 = 1,00 €/unit
o Number of units produced = 50 000

FCu = 30 000 €/50 000 = 0,60 €/unit

o Number of units produced = 100 000

FCu = 30 000/100 000 = 0,30 €/unit

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 The behaviour of variable costs vs. fixed costs

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 Summary

Variable Fixed
Raw materials Depreciation of a single-
Direct product machine
Direct labour (production
bonuses) Direct labour (fixed
Sales commission salary)

Energy related to the Supervision (foreman)

Indirect production activity Depreciation of a multi-
product machine
Rent

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 Homework

• Learn Session 1 material

• ATTENTION : MCQ in the next session !

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