topic 1 introduction notes costing
DESCRIPTION
CostingTRANSCRIPT
![Page 1: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/1.jpg)
28 September 2011 Prepared by: Marshita Hashim 1
INTRODUCTION
l Definition Cost Accounting, Management and Financial Accounting
l Difference and similarities between FA info and MA info
l Characteristics of MAl Role of management accountantl Cost classification
![Page 2: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/2.jpg)
Cost, cost unit and cost centersl Cost- the amount spent on a thing or activity
l Cost unit- quantitative unit unit of product or services- (direct material, labour, exp, ohd)
l Cost center-l a location , person or items of equipment in
respect of which costs may be ascertained and related to cost units
l costs relates to sections or parts of a business.
![Page 3: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/3.jpg)
28 September 2011 Prepared by: Marshita Hashim 3
Introduction
Definition:l Accounting:l A process whereby an economic
information is recorded and communicated to the interested parties to make decision.
l “… … .the art of recording, classifying and summarising in a significant manner, in monetary terms, the transaction and event and interpreting the result thereof”.
![Page 4: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/4.jpg)
28 September 2011 Prepared by: Marshita Hashim 4
l Management Accounting:l ‘the application of accounting techniques to provide
information that will help management to make favorable decision’.
l Those info are used for:l Formulation of policies or strategiesl Planning and controlling activitiesl Decision-taking on alternative courses of actionl Optimizing the use of resourcesl Disclosure of info to external users and employeesl Safeguarding assets
![Page 5: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/5.jpg)
28 September 2011 Prepared by: Marshita Hashim 5
Introduction (users)
l Internal Users:l Ownersl Profits earned from investments l Financial stability and growth of the business.
l Managersl Planning and organizingl Controll Appraisall Analyses the operation of the business
l Employeesl Steady employmentl Bus ability to progress and expandl Earning capacityl Other monetary benefits
![Page 6: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/6.jpg)
28 September 2011 Prepared by: Marshita Hashim 6
Introduction (users)l External Users:l Creditors (Banker & Supplier)l Financial stabilityl Ability to pay debt in short term
l Investorsl Solvency of the bus: ability to repay debts
when duel Financial strengthl Earning capacity
l Governmentl Taxing authorities = business profitsl Plan for expansion of industry & other govm
activitiesl Publicl Reduction of selling price
![Page 7: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/7.jpg)
28 September 2011 Prepared by: Marshita Hashim 7
DIFFERENCE BETWEEN FA INFO AND MA INFO
l User Orientationl FA info: External parties-required general
purpose of financial statements. Eg: shareholders=used FA to evaluate performance of the co.
l MA info: used by managers in dec making which is necessary to operate the company. –mgrs need more comprehensive and detailed info for future planning, organised resources, direct activities and control performance.
![Page 8: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/8.jpg)
28 September 2011 Prepared by: Marshita Hashim 8
l Freedom of choices/ legal requirement:l FA : l Required by statute (public limited co)= to
produce annual report.l Co Act 1965= co must report financial info to
shareholders.l MA:l Intended for internal used of the co; not
required by external body = optional.l Info is used to assist mgr with specific dec,
types & amount of info provided depends on relevance and must be compare continually with their costs to assure that they are cost benefit.
![Page 9: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/9.jpg)
28 September 2011 Prepared by: Marshita Hashim 9
l Time frame:l FA:l Concerned with historical data- what has
happened in the past.l Eg: purchased of buildings. –report in the
balance sheet at historical cost.l MA:l Focus on the future.l Futuristic = past performance evaluations are
mainly used as benchmarks for predicting the future.
l Eg: total cost last year RM10,000. So this year try to maintain or cut down.
![Page 10: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/10.jpg)
28 September 2011 Prepared by: Marshita Hashim 10
l Reporting flexibility:l FA:l Governed by GAAP (provide guidance and
facilitate comparisons)= reports same and similar transactions in the same way.
l Flexible in terms of what info to report & its form.
l MA:l Choosen by organisationl Reports all relevant info for dec making
![Page 11: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/11.jpg)
28 September 2011 Prepared by: Marshita Hashim 11
l Reporting Entity:l FA:l Report the activities of the
organisation as a wholel External users concern with
performance of organisation as a whole
l MA:l Segment of the organisation onlyl Most mgr reponsible for one segment
onlyl Eg production department
![Page 12: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/12.jpg)
28 September 2011 Prepared by: Marshita Hashim 12
l Reporting Frequency:l FA:l Well-defined schedulel Eg one year
l MA:l Whenever needed –subject to
management choices
![Page 13: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/13.jpg)
28 September 2011 Prepared by: Marshita Hashim 13
l Degree of precision:l FA:l Objectivity principle and precise
measurementl Rely on past data
l MA:l More subjective and less precisel Rely on forecasted data
![Page 14: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/14.jpg)
28 September 2011 Prepared by: Marshita Hashim 14
SIMILARITIES:
l Decision makingl Firms must be responsible and accountable
for its financial and operating performance.l Record keepingl Use of common data collection system
l Performance evaluationl Main concerns
![Page 15: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/15.jpg)
28 September 2011 Prepared by: Marshita Hashim 15
CHARACTERISTIC OF MA:
l Relevancel To be relevant, info must make a difference in a
decision being consideredl Accuracyl Timelinessl Info should be as current as possible- otherwise it
will lost valuel Eg 1 Uero = RM?
l Understandabilityl Understandable to users (some of them are not an
accountant)l Cost effectivenessl The value of info must exceed its cost
![Page 16: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/16.jpg)
28 September 2011 Prepared by: Marshita Hashim 16
ROLE OF M ACCOUNTANT:l Planningl Future activities of each departmentl Eg; prod dept: next month production= establishes
budgetl Assembles all sections budget into one master
planl Controll Compare budgeted info with actual info= the
deviations (favourable or unfavourable)l Make corrective action
l Organising/ operatingl Involves in designing and implementing of the
accounting systeml The system must tailored with the orga structure
l Communicationl motivation
![Page 17: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/17.jpg)
Classification and types of cost
![Page 18: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/18.jpg)
28 September 2011 Prepared by: Marshita Hashim 18
l Product and period costs:l Product :l Those cost that are assigns to the product that
the firm sells (identifiable with gds purchased/ produce for resale)
l Eg selling expense which can be traced to individual product
l Period:l Those cost incurred to obtain gds/services that
the firm uses in operation.l Treated as expense in the period in which they
incurred
![Page 19: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/19.jpg)
28 September 2011 Prepared by: Marshita Hashim 19
l Direct and indirect costs:l Direct:l Can be traced directly to specific cost objectivel Incurred solely for the benefits of that cost
objectivel EG; direct material
l Indirect:l Cannot be traced directlyl Incurred for multiple cost objectivesl Indirect cost is assigned to cost obj based on
some allocation basis.l Eg; building rental (occupied by several
department) –allocated on the basis of square footage used.
![Page 20: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/20.jpg)
28 September 2011 Prepared by: Marshita Hashim 20
l Controllable and uncontrollable costs:l Controllable costsl Costs that are influenced by the decision or
actions of a manager. l Example, material cost is controllable cost for
purchasing managerl uncontrollable costsl Costs that are not influenced by the decision or
actions of a manager.l Example, material cost is uncontrollable cost
for production manager
![Page 21: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/21.jpg)
28 September 2011 Prepared by: Marshita Hashim 21
l Avoidable and unavoidable costsl Avoidable costs:l Costs that may be saved by not adopting a given
alternativel Relevant for decision making
l Unavoidable costs:l Cannot be saved
![Page 22: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/22.jpg)
28 September 2011 Prepared by: Marshita Hashim 22
l Opportunity cost:l Cost that measures the opportunity that is lost or
sacrificed when the choice of one course of action requires that an alternative course of action be given up.
![Page 23: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/23.jpg)
28 September 2011 Prepared by: Marshita Hashim 23
COST BEHAVIOUR
Fixed cost:l Cost that remain constant in total
eventhough there is changes in activity level for a given range of activity.
l Example: rental, depreciation. l CPU change, total cost constantl Graph.
![Page 24: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/24.jpg)
28 September 2011 Prepared by: Marshita Hashim 24
Variable Cost:l Change in a direct proportion with
production in a relevant rangel CPU constant; total cost changel Eg: direct material
![Page 25: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/25.jpg)
28 September 2011 Prepared by: Marshita Hashim 25
Semi-fixed / semi- variable cost:l Vary with production but not in direct
proportionl Has both fixed and variable elementsl Eg; telephone bills ( deposit = fixed:
calls = variable)l High-low method:l VC/ unit = (highest RM- lowest RM)/
(Highest unit –lowest unit)l Equation : y = a + bx
![Page 26: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/26.jpg)
28 September 2011 Prepared by: Marshita Hashim 26
Step cost:l Cost that are fixed in total for a given
range of activity only and will eventually increase by a constant amount at some points.
l Example: supervisor salary, telephone bills.
l Graph.
![Page 27: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/27.jpg)
Function
l Production costs- incurred during production process, eg:direct m/l/exp; production ohd
l Adiministrative cost- incurred for general admin work; eg audit fees, office rent
l Marketing costs- incurred in selling, publicizing, distributing and producing servicing
![Page 28: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/28.jpg)
l Finance costs- incurred in financing the activities; Eg interest, commitment fees, insurance, dividends
l Research costs- seeking new @ improved ideas, materials, methods & products
l Development costs- incurred in developing new or improved ideas; Eg cost of test/ trial runs
![Page 29: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/29.jpg)
Normality
l Normal costs- have been planned for: Eg loss due to evaporation
l Abnormal Costs- have not been planned for: Eg lost production due to plant breakdown.
![Page 30: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/30.jpg)
Quality
l Incurred in designing & producing productsl 4 types:l Prevention costs-eg: high grade material,
preventive maintenance, process improvements, supplier reliability
l Detection costs- eg: testing, checking, inspectionl Internal failure costs: to rectify poor quality
products before delivered to customer; Eg:rework, retesting, scrap
![Page 31: Topic 1 Introduction Notes Costing](https://reader031.vdocument.in/reader031/viewer/2022020118/577cc3a51a28aba71196b189/html5/thumbnails/31.jpg)
l External failure costs-to rectify poor quality products after they have been delivered to customer. Eg: product liability claims, refunds, replacement, repairs, transportation costs