ESDES – BiiB1
2024/2025
COST ACCOUNTING
Bachelor in Business 1 – IT&BCIE
2024 – 2025
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Course outline
Chapter 1: Introduction to management control
Chapter 2: Presentation of the full-costing method
Chapter 3: The full costing process
Chapter 4: The variable costing method
Chapter 5: The rational imputation method
Bibliography
• Management & Cost Accounting – 5th edition – Colin DRURY – Business Press
Thomson Learning
• Fundamentals of Management Control : Techniques and Principles – Françoise
GIRAUD, Philippe ZARLOWSKI – Pearson
Notation
1. Midterm assessment + Class participation = 50% Overall mark
➢ In-class tests
➢ Collected homework
➢ Bonus:
Depending on behavior in class, active participation...
Bonus cancelled for chattering.
Exclusion from class if material forgotten (course material, calculator) and/or use of
telephone or computer.
2. Final exam = 50% note
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Chapter 3: The full costing process
The full-cost method is used to determine the amount of expenses accumulated at each stage of
the business cycle or production process for goods and services and their distribution, i.e.:
1. Purchase costs,
2. Production costs,
3. Non-production costs,
4. Cost of goods sold (Total cost)
The method consists of:
- Step 1. Decompose the production process and divide the company into analytical centers:
Table of allocation of indirect expenses, calculation of costs per unit of output (CUO).
- Step 2. Calculate the various costs (purchasing, production, COGS), using direct and indirect
expenses.
- Step 3. Value inventories.
- Step 4. Determine net income.
3.1 The indirect expenses allocation table
Auxiliary centers Main centers
AUX.C 1 AUX.C 2 AUX.C3 M.C 1 M.C 2 M.C 3
Primary breakdown total ……... ……... ……... ……... ……... ……...
Distribution AUX.C 1
Distribution AUX.C 2
Distribution AUX.C 3
Secondary breakdown total 0 0 0 ……... ……... ……...
Work unit (cost driver) WU. 1 WU. 2 WU.3
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
EXERCISE 4: Training for the allocation table: FLU Company
Auxiliary centers Main centers
HRM Administration Maintenance Supply Factory Distribution
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Primary distribution total 000 25 000 3 000 18 000 45 000 12 000
HRM Distribution 25% 45% 30%
Admin Distribution 35% 45% 20%
Maintenance Distribution 35% 30% 35%
Secondary Distribution
total
Work unit 10€ of Purchase Labor hours 100€ of sales
Purchases for the period amounted to 10 000 kilos at 2€/kg.
The turnover was 20 000 items sold at €5 each.
500 hours of labor were carried out in the factory.
TO DO:
Complete the following allocation table:
Auxiliary centers Main centers
HRM Administration Maintenance Supply Factory Distribution
Primary distribution total
HRM Distribution
Admin Distribution
Maintenance Distribution
Secondary Distribution total
Work unit 10€ of Purchase Labor hours 100€ of sales
Number of work units
cost per unit of output
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
3.2 Purchase cost
Purchasing or supply costs are incurred at the earliest stage in a company's business cycle,
whether:
• Commercial, with the purchase cost of each item of merchandise,
• Industrial, with the purchase cost of each raw material and consumable supply,
• Service, with the purchase cost of each supply or service used.
The purchase cost is a cost that groups together the expenses relating to the procurement
function.
The purchase cost is made up of direct and indirect supply costs.
A purchase cost must be calculated for each type of product/good purchased.
Quantity Unit cost Total cost
Direct expenses:
Purchased materials
Shipping fees
Customs duty
Commision
Indirect expenses:
Supply fees
Purchase cost
EXAMPLE:
An industrial company manufactures baby food.
Its purchases of raw materials are as follows: Carrots: 100 000 kg at €1.2 per kg
Tomatoes: 15 000 kg at €2.3 per kg
Shipping fees amount to: Transport for carrots: €150
Transport for tomatoes: €50
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Here is an extract from the indirect cost allocation table:
Expenses Supply
Secondary distribution
34 500
total
Work unit Kg of purchased material
Number of work units
Cost per unit of output
TO DO: determine the unit cost of output and the purchase cost of raw materials.
Purchase Cost of carrots Quantity CU Total Purchase cost of tomatoes Quantity CU Total
3.3 Inventories
3.3.1 Definition and presentation of the inventory sheet
Inventories are an important item on the balance sheet. The value of inventories must be known
in order to calculate the company's income. The company must first count its stocks and then
value them.
We'll be looking at inventories of raw materials, merchandise, intermediate products and
finished products.
At least once every twelve months, it must verify by inventory and check the existence and
value of the company's assets and liabilities.
This inventory is based on quantity and value.
Annual stocktaking is not sufficient for company management. It will be necessary to
implement a perpetual inventory, which enables it to monitor stock levels theoretically through
recording:
- Entries/Inputs (purchase, production), and
- Outflows (consumption or sale).
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
The physical count reveals inventory discrepancies.
Final stock is defined either theoretically or by physical inventory.
• Initial stock + Inputs = The final stock + Outputs
• The final stock = Initial stock + Inputs - Outputs.
Stock calculations are presented on an inventory sheet.
EXAMPLE OF INVENTORY SHEET:
Available Stock Stock used
Quantity C.U C.T Quantity C.U C.T Stock disponible
Outputs
(consumption or Q
Initial stock sales)
Stock initial
Final stock
Inputs (Purchased
Inventory or Entrées (achat
goods of Production)
rounding de matières ou
difference production)
Weighted
average cost per
Total Quantity unit "WACU" TOTAL Total Quantity WACU TOTAL
total Q
3.3.2 Inventory valuation
When inventory is counted, it must be given a value, as it is important to know what goods are
being consumed and to value inventory on the balance sheet.
Inventory valuation is the cost associated with an entity's inventory at the end of a reporting
period.
The valuation of inventory inputs depends on the nature of the inventory:
- Raw materials are valued: at purchase cost
- Finished products are valued: at production cost
The company has a choice of several methods for valuing inventory outflows:
- The WACU (Weighted Average Cost per Unit) method and WACU after each entry.
- The FIFO (First In First Out) method.
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
- The LIFO (Last In First Out) method.
3.3.2.1 WACU method
The weighted average method applies an average of the costs in inventory to the cost of goods
sold. This means that the cost of goods sold will be neither excessively high nor low in a period
of price inflation, making this method representative of the actual cost of the items stored in
inventory.
The weighted average cost can be calculated on two levels:
✓ The periodic WACU method: Outputs are valued at a weighted average unit cost over
a monthly, quarterly or annual period.
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒𝑠 (𝐼𝑆 + 𝐼𝑛𝑝𝑢𝑡𝑠)
𝑊𝐴𝐶𝑈 =
𝑇𝑜𝑡𝑎𝑚 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑖𝑒𝑠 (𝐼𝑆 + 𝐼𝑛𝑝𝑢𝑡𝑠)
Example:
Here's the inventory statement (physical stocktaking):
AU 01/03 AU 31/03
Carrots 10 000 kg at 1.38 € per kg 4 900 kg
• Purchasing costs were as follows:
20 000 kg of carrots at €1.5 per kg on 10/03
25 000 kg at €1.35 per kg on 20/03
• Consumption on 18/03 was 30 000 kg.
TO DO: Determine the WACU and draw up inventory sheets.
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Q CU Total Q CU Total
IS Outputs
Inputs FS
Difference
Total Total
Consumption is valued at: .............
✓ The WACU method after each input
✓
EXERCISE 5: Inventories
During the first month, the inventory of a mechanical engineering company showed the
following trends:
DATE QUANTITY Unit purchase price
1/1 Initial Stock 210 160
15/1 Purchase 600 200
18/1 Sales 550
10/2 Purchase 400 220
1/3 Sales 250
16/3 Purchase 600 250
23/3 Sales 350
Internal supply costs for the period amount to €32 000, to be allocated in proportion to the
purchased units.
TO DO:
Present the inventory sheets according to periodic WACU method.
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
3.4 Production cost:
3.4.1 Definition:
A production cost is calculated for each product manufactured, whether it is a main or
intermediate product.
The production cost includes:
- materials or products consumed, taken from inventory
- Direct production costs (such as labor, subcontracting, etc.)
- Indirect production costs, i.e. workshop and factory overheads. These expenses are allocated
to products according to the quantities of work units consumed by the product. The cost per
unit of output is the same for all products.
The company's production is not linear, so not all products are finished by the end of the month.
This is why the cost of production may include work-in-progress.
Quantity Cost per unit Total cost
Direct expenses (1) (2) (1) * (2)
+Consumed materials
+Labor
+Others
+Initial work-in-progress
-Final work-in-progress
+Waste destruction costs
-Production cost of saleable by-products
Indirect expenses
Production overheads Number of W.U Cost of W.U
Production cost Qty produced TOTAL
EXAMPLE:
“Meubly” company manufactures wardrobes in three stages: cutting, assembly and finishing.
The number of wardrobes manufactured was 100. The costs incurred over the period were:
- boards consumed: €88 000
- labor: €47 250
- Indirect expenses: 10 000 work units at €1.85.
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
TO DO: determine the production cost per unit.
Quantity Cost per unit Total
3.5 Cost of goods sold “COGS”
The cost price applies only to products sold, and a cost price is calculated for each product in
order to know the profit or loss for each one.
It includes:
- The production cost of sold products, valued at their out-of-stock value
- Direct distribution expenses: commissions, packaging, etc.
- Indirect expenses taken from the allocation table and based on quantities consumed.
Quantity Cost per unit Total cost
Direct expenses (1) (2) (1) * (2)
+ Sold products Qty sold Inventory CU
+ Labor
+Commissions
+Shipping
+Packaging
Indirect expenses
Overheads Number of W.U Cost of W.U
distribution expenses Number of W.U Cost of W.U
=COGS Qty sold Total
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
3.6 Gross profit
Gross profit, also called gross income, is calculated by subtracting the cost of goods sold from
revenue. Gross profit assesses a company's efficiency in using labor and supplies to produce
goods or services.
Quantity Cost per unit Total cost
Revenue (total sales) Qty sold Sales price (1)
-COGS Qty sold COGS/U (2)
=Gross income Qty sold (1)-(2)
EXAMPLE:
The production cost of products sold comes to €20 per product.
Here are the expenses:
Direct expenses:
- Transportation on sale: €1 per product
- Distribution: a commission of 5% of sales is paid.
Indirect expenses:
Distribution center
Total 50 000
Work Unit 100 € on sales
Number of W.U
Cost of W.U
Sales: 15 000 products were sold for a total of €500 000.
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
TO DO: Determine the cost price and the gross income per unit.
Quantity Cost per unit Total
Production cost of products sold
Commission
Transportation
Indirect expenses of distribution
Cost price (COGS)
Gross Income
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
EXERCISE 6 : Full-costing
“Chaisex” company manufactures seats from wood and straw.
Raw materials are purchased and stored.
Two workshops are involved in product manufacturing:
• Fabrication workshop: chair assembly
• Finishing workshop: chairs are sanded and painted.
For the month of January, the accounting data in euros are:
Main sections
Supply fabrication finishing distribution
Primary break down total 22 620 65 265 100 275 49 300
Work unit 10 euros of purchases materials Machine hour Hour of labor in the workshop 100 euros of sales
Number of work units
cost per unit of output
Inventory value at beginning of the month
Raw materials
Quantity Total
Wood 13 575 m² 78 098,75 €
Straw 11 300 kg 15 440,00 €
Supplies 3000 batches 10 380,00 €
Purchases of the month:
Raw materials purchases of the month
Wood 5 000m² 3 euros/m²
Straw 12 000kg 0,8 euros/kg
Supplies 2 000 batches 2 euros/batch
Direct expenses:
-Shipping expenses:
• Shipping on straw purchases: 80 euros
• Shipping on wood purchases: 150 euros
• Shipping on sales: 1 euro per chair
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
-Workshop machine hours
• Fabrication workshop: 9 500 hours
• Finishing workshop: 2 000 hours
-Workshop labor hours are:
• Fabrication workshop: 10 500 hours
• Finishing workshop: 2 500 hours
-The hourly labor rate is 18 euros.
-Distribution: a commission of 5% of sales is paid.
Material consumption is as follows:
✓ Wood: 10 500 m2
✓ Straw: 16 000 kg
✓ Supplies: 2 500 batches
✓ To produce: 25 000 chairs
Stock at the end of January:
Raw materials
Wood 8 075 m²
Straw 7 500 kg
Supplies 2 500 batches
Sales:
24 000 chairs were sold for 580 000 euros.
➔ Let's do the calculations 😊
First, let's calculate the cost of a unit of supply function.
The unit of measurement for the activity is 10 euros of raw materials purchased, so let's
calculate the purchases:
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Number of work units:
-
-
-
Purchases represent:
A unit is:
Let's calculate the purchase cost of the three goods
Calculating the purchase cost of wood
Raw material “WOOD” Quantity Cost/unit Total
Purchase
Shipping
Indirect expenses
Supply
Purchase cost of wood
Calculating the purchase cost of straw
Raw material “STRAW” Quantity Cost/unit Total
Purchase
Shipping
Indirect expenses
Supply
Purchase cost of straw
Calculating the purchase cost of supplies
Raw material “SUPPLIES” Quantity Cost/unit Total
Purchase
Shipping
Indirect expenses
Supply
Purchase cost of supplies
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Let's draw up the three stock sheets using the WACU method
Raw material inventory “WOOD”
Initial
Stock Output
Input Final Stock
difference
Total total
Raw material inventory “STRAW”
Initial
Stock Output
Input Final Stock
difference
Total total
Raw material inventory “SUPPLIES”
Initial
Stock Output
Input Final Stock
difference
Total total
Let's calculate production costs
Fabrication workshop Quantity Cost/unit Total
RM Wood
RW Straw
Batches of supplies
Fabrication workshop
expenses (IE)
Fabrication labor hour
Cost of manufactured
chairs
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Finishing workshop Quantity Cost/unit Total
Fabrication workshop outputs
Finishing workshop expenses (IE)
Finishing labor hour (DE)
Production cost of finished chairs
The chairs are then stored.
To draw up the stock sheet, we need to know the initial stock and the outgoing stock. In the
case of finished goods stock, outgoing stock corresponds to sales, so let's look up sales and
initial stock in the statement:
Initial
Stock Output
Input:
Production Final Stock
Total Total
Let's calculate the cost of the distribution function
The unit of measurement is 100 euros of sales: sales represent 580 000 euros equivalent to
5 800 units.
Let's calculate the cost price (COGS)
Quantity Cost/unit Total
Quantity sold
Commission
Shipping
Indirect expenses of
distribution
Cost price
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Nesrine MECHRI
ESDES – BiiB1
2024/2025
Let's calculate the Gross profit (Gross income)
Quantity Cost/unit Total
Revenue (total sales)
- COGS
= Gross income
Reconciliation with the general accounting system is achieved by analyzing which expenses
have been included in the costs and which have been excluded. If we go back to Chapter 2, we
can see that:
General accounting expenses
+ additional expenses
- non-incorporable expenses
= cost accounting expenses
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Nesrine MECHRI
