ARA LOIS RANO

COST ACCOUNTING REVIEWER

What is Cost Accounting?

Cost Accounting tracks, analyzes, and reports all costs associated with a
business to help management make decisions on pricing, budgeting, and
profitability.
 It records costs per unit, job, process, order, or service.
 It also tracks costs for production, selling, and distribution.

Financial Accounting vs. Cost Accounting

Financial Accounting Cost Accounting

Focuses on external reporting (investors,

Focuses on internal management
creditors)

Prepares financial statements Analyzes production costs

Flexible methods tailored to company

Follows GAAP/IFRS
needs

Key Functions of Cost Accounting

1. Bookkeeping - Tracks costs.
2. Cost Control - Monitors and manages expenses.
3. Cost Analysis - Breaks down cost components.
4. Cost Comparison - Compares actual vs. standard costs.
5. Cost Planning - Budgets future costs.
6. Cost Finding - Identifies total and unit costs.

TYPES OF COSTS (with Examples!)

📍 1. Product Costs
Costs directly linked to making a product. These appear in inventory first and
later move to Cost of Goods Sold (COGS).
Examples:
  Direct Materials: Wood used to make furniture.
 Direct Labor: Wages paid to assembly workers.
 Manufacturing Overhead: Factory electricity, machine depreciation.

📍 2. Period Costs
Expenses not directly tied to production. These are recorded in the income
statement in the period they occur.
Examples:
 Administrative Salaries: Manager’s salary.
 Office Rent: Corporate office lease.
 Marketing Expenses: Advertising campaign cost.

📍 3. Fixed Costs
Costs that stay constant regardless of production volume.
Examples:
 Factory Rent: Same monthly rent whether you make 100 or 1,000 units.
 Insurance Premiums: Fixed annual policy cost.

📍 4. Variable Costs
Costs that change directly with production volume.
Examples:
 Raw Materials: More production = more materials.
 Direct Labor (if paid per piece): More units made = more wages.

📍 5. Direct Costs
Costs that can be traced directly to a product or service.
Examples:
 Fabric for clothing production.
 Wages of a worker building a car.

📍 6. Indirect Costs
Costs that cannot be directly traced to a single product.
Examples:
 Factory electricity (used for all products).
 Factory supervisor’s salary (oversees multiple products).

📍 7. Controllable Costs
Costs that can be influenced by a manager.
Examples:
 Overtime pay approval by a supervisor.
 Advertising budget.

📍 8. Uncontrollable Costs
Costs beyond the manager's control.
Examples:
 Depreciation based on corporate policy.
 Taxes set by the government.

📍 9. Opportunity Cost
The benefit lost when choosing one alternative over another.
Example:
 If a factory uses space for storage instead of production, the lost
revenue from production is the opportunity cost.

📍 10. Sunk Costs

Costs already incurred and cannot be recovered.
Example:
 Money spent on research for a canceled project.

COST ACCOUNTING SYSTEMS

System Description

Actual Costing Records all actual costs (materials, labor, overhead)

Standard Uses pre-determined costs, compares to actual (variance

Costing analysis)
System Description

Normal Uses actual materials & labor but standard overhead

Costing rates

INVENTORY VALUATION METHODS

Method Description

Throughput
Focuses on contribution per product
Costing

Direct/Variable
Only includes direct costs
Costing

Full Absorption
Includes all manufacturing costs
Costing

Activity-Based Assigns costs based on activities that

Costing cause them

INVENTORY COST FLOW ASSUMPTIONS

Method Description

Specific
Tracks exact cost per unit
Identification

First-In, First-Out (oldest inventory

FIFO
sold first)

Weighted Average Averages total cost across units

COST ACCUMULATION METHODS

Method Description

Job Order Tracks costs for each specific job/order (custom

Costing products)

Process
Tracks average costs for mass-produced products
Costing

FORMULAS
For Merchandising Business
Cost of Goods Sold (COGS) =
Beginning Inventory + Purchases - Ending Inventory
For Manufacturing Business
Gross Profit =
Sales - Cost of Goods Manufactured

EXAMPLE 1:
Labli Manufacturing produces wooden tables. Here’s their data for January 2025:
 Beginning Raw Materials Inventory: ₱50,000
 Raw Materials Purchased: ₱200,000
 Ending Raw Materials Inventory: ₱30,000
Direct Labor: ₱180,000
 Factory Rent: ₱50,000
 Utilities (Factory): ₱20,000
 Depreciation on Factory Equipment: ₱25,000
 Beginning WIP Inventory: ₱60,000
 Ending WIP Inventory: ₱40,000
 Beginning Finished Goods Inventory: ₱80,000
 Ending Finished Goods Inventory: ₱90,000
Required:
1. Compute Total Manufacturing Costs
2. Compute Cost of Goods Manufactured (COGM)
3. Compute Cost of Goods Sold (COGS)

LABLI MANUFACTURING
 Cost of Goods Manufactured Statement
For the Month Ended January 31, 2025

Amount
Particulars
(₱)

Direct Materials:

Beginning Raw Materials Inventory 50,000

Add: Raw Materials Purchased 200,000

Raw Materials Available for Use 250,000

Less: Ending Raw Materials

(30,000)
Inventory

Direct Materials Used 220,000

Direct Labor 180,000

Manufacturing Overhead:

Factory Rent 50,000

Utilities - Factory 20,000

Depreciation - Factory Equipment 25,000

Total Manufacturing Overhead 95,000

Total Manufacturing Costs 495,000

Add: Beginning Work in Process

60,000
Inventory

Less: Ending Work in Process

(40,000)
Inventory

Cost of Goods Manufactured ₱515,00

(COGM) 0

LABLI MANUFACTURING
Cost of Goods Sold Statement
For the Month Ended January 31, 2025

Amount
Particulars
(₱)

Cost of Goods
515,000
Manufactured

Add: Beginning Finished

80,000
Goods Inventory
 Amount
Particulars
(₱)

Goods Available for Sale 595,000

Less: Ending Finished Goods

(90,000)
Inventory

Cost of Goods Sold ₱505,00

(COGS) 0

EXAMPLE 2:

 Beginning Raw Materials Inventory: ₱100,000

 Raw Materials Purchased: ₱300,000
 Ending Raw Materials Inventory: ₱90,000
 Direct Labor ₱400,000
 Factory Rent: ₱70,000
 Factory Utilities: ₱30,000
 Depreciation on Factory Equipment: ₱40,000
 Indirect Labor (Factory janitors & supervisors): ₱60,000
 Indirect Materials (Factory supplies): ₱25,000
 Repairs & Maintenance - Factory Machines: ₱35,000
 Factory Insurance: ₱20,000
 Office Rent: ₱50,000
 Sales and Marketing Expenses: ₱40,000
 Administrative Salaries: ₱90,000
 Office Supplies: ₱10,000
 Beginning WIP Inventory: ₱150,000
 Ending WIP Inventory: ₱100,000
 Beginning Finished Goods Inventory: ₱200,000
 Ending Finished Goods Inventory: ₱180,000

✅ Required:
1. Prepare the Cost of Goods Manufactured (COGM) Statement.
2. Prepare the Cost of Goods Sold (COGS) Statement.
3. Identify which costs are Product Costs and which are Period Costs.

LAST SUB COMPANY

Cost of Goods Manufactured (COGM) Statement
For the Month Ended April 30, 2025

Amount
Particulars
(₱)

Direct Materials:

Beginning Raw Materials Inventory 100,000

Add: Raw Materials Purchased 300,000

Raw Materials Available for Use 400,000

Less: Ending Raw Materials

(90,000)
Inventory

Direct Materials Used 310,000

Direct Labor 400,000

Manufacturing Overhead:

Factory Rent 70,000

Factory Utilities 30,000

Depreciation - Factory Equipment 40,000

Indirect Labor 60,000

Indirect Materials 25,000

Repairs & Maintenance - Factory

35,000
Machines

Factory Insurance 20,000

Total Manufacturing Overhead 280,000

Total Manufacturing Costs 990,000

Add: Beginning Work in Process

150,000
Inventory
 Amount
Particulars
(₱)

Less: Ending Work in Process

(100,000)
Inventory

Cost of Goods Manufactured ₱1,040,0

(COGM) 00

LAST SUB COMPANY

Cost of Goods Sold (COGS) Statement
For the Month Ended April 30, 2025

Amount
Particulars
(₱)

Cost of Goods Manufactured

1,040,000
(COGM)

Add: Beginning Finished Goods

200,000
Inventory

Goods Available for Sale 1,240,000

Less: Ending Finished Goods

(180,000)
Inventory

₱1,060,0
Cost of Goods Sold (COGS)
00

EXAMPLE 3:

Cost Item Amount (₱) Additional Info

Materials Purchased ₱500,000 -

Labor Wages ₱350,000 -

70% fixed, 30%

Utilities (Factory) ₱100,000
variable

Rent (Factory) ₱120,000 -

Depreciation (Factory Equipment) ₱60,000 -

Indirect Materials Used ₱30,000 -

Indirect Labor (Supervisors &

₱45,000 -
Maintenance)

Factory Insurance ₱25,000 -

Cost Item Amount (₱) Additional Info

Factory Supplies ₱15,000 -

Required:
1. Compute Total Variable Costs.
2. Compute Total Fixed Costs.
3. Compute Prime Cost.
4. Compute Conversion Cost.

✅ Total Variable Costs = ₱925,000

Total Fixed Costs

✅ Total Fixed Costs = ₱320,000

✅ Prime Cost = ₱850,000

✅ Conversion Cost = ₱745,000

EXAMPLE 4:
CHOLO Manufacturing provided the following data for June 2025:
 Beginning Raw Materials Inventory: ₱200,000
 Raw Materials Purchased: ₱800,000
 Indirect Materials Used: ₱50,000
 Ending Raw Materials Inventory: ₱180,000
 Beginning Work in Process Inventory: ₱300,000
 Ending Work in Process Inventory: ₱250,000
 Beginning Finished Goods Inventory: ₱400,000
 Sales Revenue: ₱3,200,000
 Ending Finished Goods Inventory: ₱350,000
 Factory Rent: ₱150,000
 Direct Labor: ₱600,000
  Factory Utilities: ₱120,000
 Depreciation - Factory Equipment: ₱100,000
 Indirect Labor: ₱90,000
 Repairs and Maintenance - Factory: ₱70,000
 Factory Insurance: ₱60,000
 Administrative Expenses: ₱200,000
 Selling Expenses: ₱150,000

Required:
1. Compute Cost of Goods Sold (COGS).
2. Compute Gross Profit.
3. Compute Net Income.

EXAMPLE 5:

JEWEL Manufacturing produced 15,000 units during September 2025. The

following costs per unit were incurred:

Cost per Unit

Cost Item
(₱)

Direct Materials 120

Direct Labor 80

Indirect Materials 10

Indirect Labor 15

Factory Rent 20

Depreciation - Factory
15
Equipment

Utilities - Factory 12

Factory Insurance 8

Repairs and Maintenance -

10
Factory

Required:
1. Compute Total Variable Costs.
 2. Compute Total Fixed Costs.
3. Compute Prime Cost.
4. Compute Conversion Cost.
5. Compute Prime Cost per Unit and Conversion Cost per Unit
6. Compute for all given if 20,000 units are available

1. Total Variable Costs = ₱3,300,000

(Direct Materials, Direct Labor, Indirect Materials, and part of Utilities if split)
2. Total Fixed Costs = ₱1,050,000
(Factory Rent, Depreciation, Indirect Labor, Insurance, Repairs, and part of
Utilities if split)
3. Prime Cost per Unit = ₱200
(Direct Materials + Direct Labor)
4. Conversion Cost per Unit = ₱170
(Direct Labor + All Overhead)
5. Prime Cost per Unit = ₱200
Conversion Cost per Unit = ₱170

6. Compute All Costs for 20,000 Units:

Total Prime Cost (20,000 ₱4,000,0

units) 00

Total Conversion Cost ₱3,400,0

(20,000 units) 00

Total Variable Costs (20,000 ₱4,440,0

units) 00

Total Fixed Costs (20,000 ₱1,360,0

units) 00

EXAMPLE 3 SOLUTIONS:
GIVEN COST ITEMS & ADDITIONAL INFO

Amount
Cost Item Additional Info
(₱)

Materials Purchased ₱500,000 Direct Material

Labor Wages ₱350,000 Direct Labor

70% fixed, 30%

Utilities (Factory) ₱100,000
variable

Rent (Factory) ₱120,000 Fixed

 Amount
Cost Item Additional Info
(₱)

Depreciation (Factory Equipment) ₱60,000 Fixed

Indirect Materials Used ₱30,000 Variable

Indirect Labor (Supervisors &

₱45,000 Fixed
Maintenance)

Factory Insurance ₱25,000 Fixed

Factory Supplies ₱15,000 Variable

1. Total Variable Costs Calculation

Variable Costs

Item Amount (₱)

Direct Materials Purchased ₱500,000

Direct Labor Wages ₱350,000

Utilities (Factory) - Variable ₱100,000 × 30% =

Portion (30%) ₱30,000

Indirect Materials Used ₱30,000

Factory Supplies ₱15,000

Total Variable Costs ₱925,000

2. Total Fixed Costs Calculation

Fixed Costs

Item Amount (₱)

Utilities (Factory) - Fixed Portion ₱100,000 × 70% =

(70%) ₱70,000

Rent (Factory) ₱120,000

Depreciation (Factory Equipment) ₱60,000

Indirect Labor (Supervisors &

₱45,000
Maintenance)

Factory Insurance ₱25,000

Total Fixed Costs ₱320,000

3. Prime Cost Calculation
Prime Cost Formula
Prime Cost=₱500,000+₱350,000=₱850,000

4. Conversion Cost Calculation

Conversion Cost Formula
Conversion Cost=₱350,000+₱30,000+₱45,000+₱25,000+₱15,000+₱100,000+
₱120,000+₱60,000

EXAMPLE 4 SOLUTION:

CHOLO MANUFACTURING
Cost of Goods Manufactured
For the Month Ended June 30, 2025
Direct Materials:
Beginning Raw Materials Inventory ₱200,000
Add: Raw Materials Purchased ₱800,000
Raw Materials Available for Use ₱1,000,000
Less: Ending Raw Materials Inventory ₱180,000
Raw Materials Used ₱820,000
Less: Indirect Materials Used ₱50,000
Direct Materials Used ₱770,000
Direct Labor ₱600,000
Factory Overhead:
Indirect Materials ₱50,000
Indirect Labor ₱90,000
Factory Rent ₱150,000
Factory Utilities ₱120,000
Depreciation - Factory Equipment ₱100,000
Repairs and Maintenance ₱70,000
Factory Insurance ₱60,000
Total Factory Overhead ₱640,000
Total Manufacturing Costs ₱2,010,000
Add: Beginning Work in Process Inventory ₱300,000
Less: Ending Work in Process Inventory ₱250,000
Cost of Goods Manufactured (COGM) ₱2,060,000
 CHOLO MANUFACTURING
Cost of Goods Sold
For the Month Ended June 30, 2025
Cost of Goods Manufactured ₱2,060,000
Add: Beginning Finished Goods Inventory ₱400,000
Less: Ending Finished Goods Inventory ₱350,000
Cost of Goods Sold (COGS) ₱1,890,000

CHOLO MANUFACTURING
Income Statement
For the Month Ended June 30, 2025
Sales Revenue ₱3,200,000
Less: Cost of Goods Sold ₱1,890,000
Gross Profit ₱1,310,000
Operating Expenses:
Administrative Expenses ₱200,000
Selling Expenses ₱150,000
Total Operating Expenses ₱350,000
Net Income ₱960,000

EXAMPLE 5 SOLUTIONS:

1. Total Variable Costs

Variable Costs per Unit:
 Direct Materials = ₱120
 Direct Labor = ₱80
 Indirect Materials = ₱10
 Utilities - Factory (Assumed Variable) = ₱12
 Repairs and Maintenance - Factory (Assumed Variable) = ₱10
Total Variable Cost per Unit = 120 + 80 + 10 + 12 + 10 = ₱232
Total Variable Costs (for 15,000 units):
= ₱232 × 15,000
= ₱3,480,000

2. Compute Total Fixed Costs

Fixed Costs per Unit:
 Indirect Labor = ₱15
 Factory Rent = ₱20
 Depreciation - Factory Equipment = ₱15
 Factory Insurance = ₱8
Total Fixed Cost per Unit = 15 + 20 + 15 + 8 = ₱58
Total Fixed Costs (for 15,000 units):
= ₱58 × 15,000
= ₱870,000

3. Prime Cost
Prime Cost per Unit:
 Direct Materials = ₱120
 Direct Labor = ₱80
Prime Cost per Unit = 120 + 80 = ₱200
Total Prime Cost (for 15,000 units):
= ₱200 × 15,000
= ₱3,000,000

4. Compute Conversion Cost

Conversion Cost per Unit:
 Direct Labor = ₱80
 Indirect Labor = ₱15
 Factory Rent = ₱20
 Depreciation - Factory Equipment = ₱15
 Utilities - Factory = ₱12
 Factory Insurance = ₱8
 Repairs and Maintenance - Factory = ₱10
Conversion Cost per Unit = 80 + 15 + 20 + 15 + 12 + 8 + 10 = ₱160
Total Conversion Cost (for 15,000 units):
= ₱160 × 15,000
= ₱2,400,000

5. Compute Prime Cost per Unit and Conversion Cost per Unit
Prime Cost per Unit: ₱200 (already computed)
Conversion Cost per Unit: ₱160 (already computed)

6. Compute for All Costs if 20,000 Units are Available

Total Variable Costs (for 20,000 units)
= ₱232 × 20,000
= ₱4,640,000
Total Fixed Costs (for 20,000 units)
= ₱870,000 (Fixed costs do not change with volume, so they stay the same)
Total Prime Cost (for 20,000 units)
= ₱200 × 20,000
= ₱4,000,000
Total Conversion Cost (for 20,000 units)
= ₱160 × 20,000
= ₱3,200,000