INAUDITO, JAN KRISVI LUIDEN
BSE 3D
PAPERWORK NO.1- Introduction to Cost Accounting
Definition and Basic Concepts
Cost Accounting- is a branch of accounting that deals with the process of recording and
summarizing the amount of cost that is spent on the company’s activities. It includes all
costs of process, product, or service used, provided, and sold.
Basic Concepts:
• Cost- refers to the monetary value or the sacrifice made to acquire goods, services,
or resources.
• Cost object- anything for which cost information is collected.
• Cost accumulation- involves collecting costs related to a particular cost object.
• Cost assignment- allocation of accumulated costs to cost objects based on
predetermined methods.
• Cost behavior- describes how cost changes with changes in activity levels within
an organization.
• Cost estimation- predicting and determining the expected cost of producing a
product or delivering a service.
Significance of Cost Accounting
Cost accounting plays a critical role in the business decision-making process. It helps
management understand the cost structure of the organization, identify cost drivers, and
allocate resources effectively. By analyzing costs, businesses can optimize operations,
set appropriate prices, evaluate performance, and determine the profitability of products,
services, and operations.
Purpose of Cost Accounting
1) Cost control- involves monitoring and regulating expenses to keep them within
budgeted limits. The goal is to ensure that spending aligns with the financial goals
of the organization and to maintain or increase profitability.
2) Cost computations- involve calculating and analyzing the costs associated with
producing goods or providing services. Accurate cost computations are essential
for pricing, budgeting, and financial planning.
3) Cost reductions- aim to decrease expenses without compromising the quality of
products or services. Effective cost-reduction strategies can enhance profitability
and operational efficiency.
Financial Accounting vs Managerial Accounting
Financial Accounting Managerial Accounting
Definition An information system that Accounting system by which
identifies records and information is presented and
communicates the economic appropriately supplied to
events of an organization to management to operate the
interested users. business smoothly and
efficiently.
User External persons who make Managers who plan for and
financial decisions. control an organization.
Time focus Historical perspectives. Future emphasis.
Verifiability vs Emphasis on verifiability. Emphasis on relevance for
relevance planning and control.
Precision vs Emphasis on precision. Emphasis on timeliness.
timeliness
Subject The primary focus is on the Focuses on segments of an
whole organization. organization.
GAAP Must follow the GAAP and Need not follow GAAP and
prescribed formats. prescribed formats.
Requirement Mandatory for external reports. Not mandatory.
Value Chain Activities
Value Chain- a set of activities an entity applies to be able to deliver a valuable product
to customers. It is also a set of activities or functions that allows the conversion of inputs
into useful products and services.
Activities related to the value chain:
• Research and Development- analysis, testing, and studying of different
methodologies of cost reduction or quality improvement.
• Design- creation and development of product and service design fit for the market.
• Supply- proper management of raw materials inventory coming from suppliers.
• Production- the process of acquisition and construction of company resources to
create products and services.
• Marketing- promotions made by an entity to make the product or service attractive
in the market.
• Distribution- the process of delivery of products and services to customers.
• Customer service- aftersales support for customers.
