COST ACCOUNTING- It is designed for managers who makes decisions only for their own organization,

there is no need for the information to be comparable to similar information from other organizations.
VALUE CHAIN- a set of activities that transforms raw resources into goods and services that end users
purchase and consume, and the treatment of disposal of any waste they generate.
VALUE-ADDED ACTIVITIES- performed by firms in the chain that customers perceive as adding utility to
the goods or services they purchase
 RESEARCH AND DEVELOPMENT- involves generating/experimenting with ideas related to new
products, services or processes.
 DESIGN (PRODUCTS, SERVICES, PROCESSES)- concerns with detailed planning and engineering of
products, services and goods.
 PRODUCTION/MANUFACTURING- involves acquiring, coordinating, and assembling of resources
to produce a product or deliver a service.
 MARKETNG- deals with promoting and selling products or services to customers or prospective
customers.
 DISTRIBUTION- this covers delivering products or services to customers.
 CUSTOMER SERVICE- this involves providing after-sale support to customers.

STAGES OF COSTING SYSTEM

 COST ACCUMULATION- involves the collection of cost data in some organized way be means of
an accounting system. (INPUT-PROCESS-OUTPUT)
 COST ASSIGNMENT- the costing system traces direct costs and allocated indirect costs to
designated cost objects.

COST MANAGEMENT FRAMEWORK- managers worldwide are becoming increasingly aware of the
importance of the quality and timeliness of products and service sold to their external customers. In
turn, accountants are becoming increasingly sensitive to the quality and timeliness of accounting
information that managers require.

PRIMARY APPLICATIONS OF COST ACCOUNTING SYSTEMS

 Cost accounting systems provide data.

 Obtain information for planning and control.
 Performance evaluation.
 Decision making

FINANCIAL TITLES IN AN ORGANIZATION.

 CHIEF FINANCIAL OFFICER- manages entire finance and accounting function.

 TREASURER- makes liquid assets, conduct business with banks and other financial institutions.
 CONTROLLER- plans and design information and incentive systems.
 INTERNAL AUDITOR- makes liquid assets, conduct business with banks and other financial
institutions.
 COST ACCOUNTANT- records, measures, estimates and analyzes costs.
CODE OF CONDUCT- management accountants, including cost accountants, have important ethical
responsibilities related to;

 PROFESSIONAL COMPETENCE- an accountant must work with skill and professionalism.

 OBJECTIVITY- remain fair and impartial, must not be biased.
 PROFESSIONAL BEHAVIOR- always be compliant with the laws and regulations.
 CONFIDENTIALITY- keeping financial information private.
 INTEGRITY- being honest and moral, must not associate with misleading information.

COST- it may be defined as the value foregone or sacrifice of resources for the purpose of achieving
some economic benefit that will promote the firms's profit making ability. An outlay or expenditures of
money to acquire goods and services that assist in performing operations.

COST POOLS- a grouping of individual costs, typically by department or service center. Cost allocations
are then made from the cost pool.

COST DRIVER- is any factor that has the effect of changing the level of the total costs. The management
of the key cost driver is essential for a firm that competes on the basis of cost leadership.

COST CLASSIFIED BY NATURE OR MANAGEMENT FUNCTION

 MANUFACTURING COSTS- cost associated with the production of goods. (DIRECT LABOR, DIRECT
MATERIALS, MANUFACTURING OVERHEAD).
 NON-MANUFACTURING COSTS- cost related to selling and activities unrelated to production.
(MARKETING COSTS, GENERAL AND ADMINISTRATIVE COSTS)

COST CLASSIFIED ACCORDING TO TIMING AND RECOGNITION AS EXPENSE

 PRODUCT COSTS- involves all costs in acquiring a product.

 PERIOD COSTS- all costs identified with accounting periods and are not included in production
costs.

COST CLASSIFICATION FOR PRODUCTIVITY COST BEHAVIOR

 COST BEHAVIOR- it is about how costs react to changes in the business activity.
o VARIABLE COSTS- changes directly in proportion.
o FIXED COSTS- related to time spent on products.
o MIXED COSTS- applied to units within the reporting period.

COST CLASSIFIED BY TYPES OF INVENTORY

 RAW MATERIALS INVENTORY- cost of all raw materials purchased but not used.
 WORK IN PROCESS INVENTORY- cost of all partially finished goods.
 FINISHED GOODS INVENTORY- costs of produced goods but still unsold.
 MERCHANDISE INENTORY- cost purchased by retailers/wholesalers that are still unsold.

COST CLASSIFICATION ACCORDING TO TRACEABILITY TO COST OBJECTIVE

 DIRECT COSTS- can be economically traced to a single cost object.

 INDIRECT COSTS- not directly or easily traceable to the cost object.
COST CLASSIFICATION ACCORDING TO MANAGERIAL INFLUENCE

 CONTROLLABLE COST- subject to significant influence within the accounting period.

 NONCONTROLLABLE COST- costs where a manager has no significant influence on.

COST TERMINOLOGIES USED FOR PLANNING AND CONTROL

 STANDARD COST- a predetermined cost usually presented in terms of cost per unit.
 BUDGETED COST- representing the expecting/planned cost for a given period.
 ABSORPTION COST- includes all manufacturing costs in the cost per unit.
 DIRECT COST- fixed costs are charged at sales as incurred and are not assigned to specific units
of manufactured prodcuts.
 INFORMATION COST- cost of getting information.
 ORDERING COST- an increasing cost along with the amount of orders placed for inventory.
 OUT-OF-POCKET COST- cost that must be with cash outlay, or a current expenditure.

COST CLASSIFICATION ACCORDING TO A TIME PERIOD FOR WHICH COST IS INCURRED.

 HISTORICAL COST- cost incurred from a previous period.

 FUTURE COST- budgeted cost expected to be incurred in future periods.

COST CLASSIFICATION ACCORDING TO A TIME FRAME PERSPECTIVE

 COMMITTED COST- the inevitable consequence of previous commitments.

 DISCRETIONARY COST- for the size of time of incurrence, which is a matter of choice.

COST CLASSIFICATION FOR DECISION MAKING AND OTHER ANALYTICAL PURPOSES

 RELEVANT COST- future costs that are different under on decision alternative than under
another decision alternative.
 INCREMENTAL COST- in evaluating an alternative provided, this cost is an additional cost to
determine its feasibility.
 SUNK COST- pasts costs incurred that appear to be irrelevant to future decisions.
 OPPORTUNITY COST- the value of the greatest alternative prior to the result of choosing
alternative resources or strategy.
 MARGINAL COST- related to the next unit/project or incremental cost associated with another
project as opposed to the next discrete unit.
 VALUE-ADDED COST- cost that increases the value of a product.

COST BEHAVIOR- refers to how costs respond when changes occur in the level of business activity.

IMPORTANCE OF UNDERSTANDING COST BEHAVIOR

 PLANNING- it reduces the management to make decisions about an existing problem, based in
parts on future expectations.
 CONTROL- the use of feedback information for comparison with expectations and
implementation of actions based on those comparisons.
 COST ANALYSIS- the integral part of both planning and controlling, where it lies on the
understanding of cost behavior patterns.
ASSUMPTIONS IN COST BEHAVIOR

 LINEAR- refers to the discretional movement of cost behavior.

 RELEVANT RANGE- refers to the levels of activity within which the identified cost behavior
patterns are valid.
 TIME PERIOD- cost behavior patterns identified are the only over a specific period of time.

TYPES OF COST BEHAVIOR PATTERNS

 VARIABLE COSTS- cost that changes in total as the level of activity changes.
 FIXED COSTS- it remains constant regardless of changes in the level of activity within the
relevant range.
 MIXED COSTS- also known as "semivariable costs" that contains both fixed and variable
components.

BUSINESS SECTORS

 MERCHANDISING SECTOR- purchases and sells tangible without changing their initial forms.
(MERCHANDISE INVENTORY)
 MANUFACTURING SECTOR- purchase materials and components and convert them into various
finished goods. (DIRECT MATERIALS/SUPPLIES, WORK IN PROCESS, FINISHED GOODS, FACTORY
GOODS INVENTORY)
 SERVICE SECTOR- provides service or intangible products to their customers. (MAY HAVE
SUPPLIES, WORK IN PROCESS INVENTORY)

 PRIME COSTS- includes direct labor and direct materials.

 CONVERSION COSTS- includes direct labor and factory overhead.
 TOTAL MANUFACTURING COSTS- includes, DM, DL, FOh.
 PRODUCTION COSTS- includes direct material, direct labor, and manufacturing overhead
incurred to produce goods or services.
 MARKETING COSTS- includes all selling and delivering costs, as well as promoting sales and
retained customers.
 ADMINISTRATIVE COSTS- includes directing and controlling company and general activities.

TWO METHODS OF INVENTORY

 PERPETUAL- requires an ongoing record of transfer in/out of inventory.

 PERIODIC- requires only a periodic count and valuation of inventory.

PRODUCT COSTING- it is the process of accumulating, classifying and assigning direct materials, direct
labor, and factory overhead to products or services.

THREE COSTING METHODS

 COST ACCUMULATION METHOD- Job costing or Process costing.

 COST MEASUREMENT METHOD- actual, normal, or standard costing.
 OVERHEAD ASSIGNMENT METHOD- volume based or activity based.
COST ACCUMULATION

 JOB-ORDER COSTING- treats jobs and batches of products or services as cost objects and this
system is more appropriate in situations where most costs incurred for readily identified jobs
with specific customers, contracts, or projects. Job order costing are usually found in small or
medium firms.
 PROCESS COSTING- are found in firms with continuous mass productions of one or a few
homogenous products. This system has less detailed recordkeeping; hence, if a company
chooses between job-order and costing system, it would generally find that recordkeeping costs
are lower under process costing.

COST MEASUREMENT-

 ACTUAL COSTING SYSTEM- uses actual costs incurred for all product cost including direct
materials, direct labor, and factory overhead.
 NORMAL COSTING SYSTEM- uses actual costs for direct materials, direct labor and factory
overhead, but normal costing involves estimating a portion of overhead to be assigned to each
product as it is produced.
 STANDARD COSTING SYSTEM- uses standard costs and qualifies for all three types of
manufacturing costs. Standard costs are target costs the firm should attain.

PROCESS COSTING- accumulates for each department for the time period.

 WEIGHTED-AVERAGE METHOD- includes all costs in calculating the unit costs, including both
those costs incurred during the time period and those incurred the prior period that are shown
as beginning work-in-process inventory of this period.
 FIFO METHOD- includes in calculating the unit cost only costs incurred and work performed
during the current period. It assumes that the first work done is to complete the beginning
work-in-process.

LOSS & SPOILED UNITS

 CONTINUOUS LOSS- may result from evaporation or shrinkage and eventually lower its output
and value.
 DISCRETE LOSS- assumed to occur at a specific point, normally when quality check is made at
inspection point.
 NORMAL LOSS- if number of lost/spoiled units falls within the tolerance level expected during
production.
 ABNORMAL LOSS- are loss in excess of the normal level.

OPERATION COSTING- a hybrid costing system that uses job-costing to assign direct materials costs to
jobs and a departmental approach to assign conversion costs to products or services.

JUST IN TIME SYSTEM- a comprehensive production and inventory system that purchases or produces
materials and parts only as needed and just in time to be used at each stage of the production process.

BACKFLUSH COSTING- an accounting method that records the costs associated with producing goods on
services only after they are produced, completed, etc.
ACTIVITY BASED COSTING- a costing method assigned to provide managers with cost information for
strategic and other decisions that potentially affect capacity and therefore fixed costs.

ACTIVITY BASED MANAGEMENT- involves analyzing and costing activities with goals of improving
efficiency and effectiveness. It also focuses on ways to improve the setup process and ways to eliminate
the demand for set-up activity.

 OPERATIONAL ABM- focuses more on enhancing the operation efficiency and asset utilization
and it lowers cost as well.
 STRATEGIC ABM- attempts to alter the demand for activities and increase profitability at the
current or improved activity efficiency.

COST DRIVER ANALYSIS- examines, quantifies, and explains the effect of the cost driver on the cost of an
activity.

 BENCHMARKING- searching great practices to find ways to improve the operation for an activity.
 CAUSE AND EFFECT DIAGRAM- maps out causes and effects that affect the desired outcome.
 PEDRO ANAYSIS- a histogram of the cost drivers that contribute to the total cost.

ACTIVITY ANALYSIS- a firm must assess each activities on its need by the product or customer, its
efficiency and effectiveness to be competitive.

PERFOMANCE MEASUREMENT- involves the identification of the work performed and the results
achieved by an activity process or organizational unit.

OPPORTUNITY COSTS- it is defined as the benefit lost when one chosen option precludes the benefit
from an alternative option.

STANDARD COSTS- what costs should be attainable, acceptable, performance. It establishes desirable
minimum costs. It is the acceptable performance or measurement