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Limson - NOTES
MODULE 2: COST CONCEPTS, CLASSIFICATIONS, AND COST BEHAVIOR
OUTLINE
I. COST
A. Cost based on functional areas
B. Cost based on timing of matching with
revenues
C. Cost of traceability
D. Cost Controllability
E. Cost as to decision-making
II. SEPARATION OF MIXED COSTS
A. High-low
B. Least Squares Regression Method
C. Scatter Diagram
D. Learning Curve
III. INCOME STATEMENT
A. Traditional
B. Contribution
COST
- Reflects the amount of resources sacrificed in order
for the company to achieve a certain objective such
as creation of goods or rendering of services
Things the entity must sacrifice to acquire revenue
Starting point
Cost on a managerial emphasis
- Cost information coming from cost accounting is a
vital tool in order for managers to plan and control
operations effectively
- Need for timely and relevant cost information
• Cost analysis and management should come after
making cost information available
• Techniques like budgeting and forecasting helps the
entity plan the future and subsequently control
operations through performance evaluation and
variance when actual data becomes available.
• A manager would have to think of ways to in order to
reduce costs and other expenses on the standpoint
of increasing profits. Strategically however,
INCREASES OR DECREASES IN COSTS
SHOULD SUPPORT THE STRATEGIC
POSITIONING SET BY THE ENTITY – basically
referring on how to achieve competitive advantage
Generally, lower costs is the goal of managerial accountant
but if needed na mas mataas to achieve competitive
advantage, its also good.
• On strategic management standpoint, management
functions, cost management, planning and decision-
making should be in line with the entity’s vision
mission, goals, and objectives
• Cost management and control is a highly important
factor in achieving, maintaining and growing the
entity’s profitability
• When an entity is continuously profitable, value
continuously increases, which goes back to the
importance of the alignment of cost control with the
entity’s vision and mission. A manager should always
put cost management in mind on a strategic
standpoint.
COST BASED ON FUNCTIONAL AREAS
MANUFACTURING COSTS
- Lahat ng ginagamit na cost sa pag produce ng
product
- Costs that is incurred in the entity’s operations on
producing products and services
- Direct materials
- Direct labor
- Manufacturing overhead
Questions
- How can we lower down our costs of production?
- What is the standard labor hours in the production
of Product A?
- How many units of material X shall we purchase
next period to avoid production delays?
NONMANUFACTURING COST
- Costs not related to the manufacturing of product
but still needs for need for operating purposes
- Costs that is incurred in the entity’s operations on
making the product known selling them, and other
administrative expenses
- Operating expenses like marketing and
advertisement, administrative expenses, selling
expenses
- What can we do to eliminate other operating
expenses that does not add value to the company?
- Are there other expenses we need to consider that
could help in our operations?
- Our office rent increase this month as compared to
las month, what is the reason?
COST BASED ON TIMING OF MATCHING WITH
REVENUES
PRODUCT COST (inventoriable)
- Cost assigned to products until they are sold
- Also like the manufacturing cost (direct material,
direct labor, overhead)
- Prime cost; direct material & direct labor ; coversion
cost (direct labor and overhead)
o Goods not yet completed – Work-in-
Process Inventory
o Goods Completed (not yet sold) – Finished
Goods Inventory
o Goods Sold – Cost of goods sold
- What are the costs that we include as product costs
that, in turn, becomes an inventoriable cost and
becomes cost of goods sold when sold to
customers?
PERIOD COST (expensed)
- Cost incurred and recognized based on time
periods
- Operating expenses like rent, salaries, and other
administrative and general expenses
- Not part on the manufacturing of product
- Is there a proper segregation of payroll as to
laborers and payroll as to office staff?
- Is there a proper segregation of factory facility rent
and office rent
