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Acct 6 Summarize

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15 views7 pages

Acct 6 Summarize

1

Uploaded by

denverpalanog0607
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© © All Rights Reserved
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Chapter 1: Introduction to Cost Accounting

Key Concepts:

 Cost Accounting helps determine the cost of products, aiding businesses in pricing
decisions, planning, and controlling operations.
 Types of Accounting:
o Financial Accounting: Provides historical data for external users (e.g., investors,
regulators).
o Managerial Accounting: Provides financial data for internal decision-making,
focusing on planning and controlling activities.
o Cost Accounting: Bridges financial and managerial accounting by supplying both
external and internal data.

Merchandising vs. Manufacturing Operations:

 Merchandising Companies: Purchase products for resale (simple inventory system).


 Manufacturing Companies: Convert raw materials into finished products (use complex
inventory with three accounts: Materials Inventory, Work in Process, Finished Goods).

Uses of Cost Accounting Data:

 Helps determine product cost.


 Assists in planning and control of operations.
 Supports decision-making regarding pricing, competition, and profitability analysis.

Two Basic Product Costing Systems:

1. Job Order Costing: Used for unique products (e.g., custom machinery). Each job
becomes a cost center.
2. Process Costing: Used for mass production of similar goods (e.g., oil refining). Costs are
assigned to each department.

Flashcard Summary:

1. What is Cost Accounting?

Cost Accounting tracks the cost of production and operations to help in pricing, controlling
operations, and decision-making.

2. What are the differences between Financial, Managerial, and Cost Accounting?
 Financial Accounting: Reports to external users (e.g., investors) with historical data.
 Managerial Accounting: Used by management for internal decision-making (e.g.,
budgeting).
 Cost Accounting: Provides product cost info for both financial and managerial purposes.

3. What is the difference between Merchandising and Manufacturing companies?

 Merchandising: Buys and resells products; uses a simpler inventory system.


 Manufacturing: Creates products from raw materials; uses multiple inventory accounts
(materials, work in process, finished goods).

4. What are Job Order and Process Costing?

 Job Order Costing: Costs are assigned to specific jobs or batches (used for unique
products).
 Process Costing: Costs are spread over departments (used for mass-produced items).
Steps to Solving Cost Accounting Problems:

1. Understand the Problem:

Identify whether the problem involves:

 Job Order Costing (costs for a specific job or project).


 Process Costing (costs distributed across departments).
 Cost of Goods Sold Calculation (used for both merchandising and manufacturing
companies).

2. Gather the Data:

 Direct Materials: Costs of materials used in production.


 Direct Labor: Wages for workers directly involved in manufacturing.
 Factory Overhead: Indirect costs (e.g., utilities, depreciation) applied using a
predetermined overhead rate.

3. Use the Correct Formula:

Depending on the problem, apply the appropriate formula:

 For Job Order Costing:

 For Process Costing:


 For Cost of Goods Manufactured:

For Cost of Goods Sold:

4. Apply Overhead:
 Use a predetermined overhead rate:

Example Problems Based on Module:

Problem 1: Job Order Costing

Data:

 Direct Materials: ₱4,000


 Direct Labor: 300 hours at ₱10 per hour
 Overhead Rate: ₱12 per labor hour

Solution:

1. Direct Labor Cost = 300 hours × ₱10/hour = ₱3,000


2. Overhead Applied = 300 hours × ₱12/hour = ₱3,600
3. Total Job Cost = ₱4,000 (Direct Materials) + ₱3,000 (Direct Labor) + ₱3,600 (Overhead) =
₱10,600

Problem 2: Cost of Goods Sold

Data:

 Direct Materials Used: ₱50,000


 Direct Labor: ₱20,000
 Factory Overhead: ₱15,000
 Beginning Work in Process: ₱5,000
 Ending Work in Process: ₱3,000
 Beginning Finished Goods Inventory: ₱7,000
 Ending Finished Goods Inventory: ₱6,000

Solution:

1. Cost of Goods Manufactured:


Cost of Goods Manufactured=50,000+20,000+15,000+5,000−3,000=₱87,000
2. Cost of Goods Sold: Cost of Goods Sold=7,000+87,000−6,000=₱88,000

Practice Problems from Module:

SAQ 3.5 (Example):


Data:

 Work in Process Inventory (Jan 1): ₱265,000


 Work in Process Inventory (Dec 31): ₱115,000
 Direct Materials: ₱890,000
 Direct Labor: ₱1,050,000
 Overhead Rate: 60% of Direct Labor
 Finished Goods Inventory (Jan 1): ₱220,000
 Finished Goods Inventory (Dec 31): ₱400,000
 Sales: ₱4,700,000
 Selling and General Expenses: ₱500,000

Solution:

1. Factory Overhead Applied: Factory Overhead=1,050,000×60%=₱630,000


2. Cost of Goods Manufactured:
Cost of Goods Manufactured=890,000+1,050,000+630,000+265,000−115,000=₱2,720,000
3. Cost of Goods Sold: Cost of Goods Sold=220,000+2,720,000−400,000=₱2,540,000
4. Net Income: Net Income=4,700,000−2,540,000−500,000=₱1,660,000

Key Tips:

 Always list out the components (direct materials, labor, overhead).


 Apply overhead using the predetermined rate.
 Use the correct formula for the specific type of costing problem.
1. Total Job Cost (Job Order Costing):

Total Job Cost=Direct Materials+Direct Labor+Applied Overhead

2. Predetermined Overhead Rate:

Overhead Rate=

3. Overhead Applied:

Overhead Applied=Overhead Rate×Actual Direct Labor (or Machine Hours)4. Cost of Goods

4. Manufactured (COGM):

COGM=Direct Materials Used+Direct Labor+Factory Overhead+Beginning Work-in-Process Inventor


y−Ending Work-in-Process InventoryEnding Work-in-Process Inventory

5. Cost of Goods Sold (COGS):

COGS=Beginning Finished Goods Inventory+COGM−Ending Finished Goods Inventory

6. Prime Cost:

Prime Cost=Direct Materials+Direct Labor

7. Conversion Cost:

Conversion Cost=Direct Labor+Factory Overhead

8. Contribution Margin:

Contribution Margin=Sales−Variable Costs

9. Break-even Point (in Units):


10. Break-even Point (in Sales Dollars):

11. Gross Profit:

Gross Profit=Sales−Cost of Goods Sold

Examples of Calculating Components:

Direct Materials Used=Beginning Materials Inventory+Purchases−Ending Materials Inventory

Cost of Goods Available for Sale (COGAS):

COGAS=Beginning Inventory + Purchases (or COGM)

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