Cost Accounting

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Fixed cost – Cost remained unchanged in related to the change in cost volume

Unit cost = TC/ Total units produced

Manufacturing companies – To purchase materials and components and convert them into various finished goods

Merchandising-sector- To purchase and then sell tangible products without changing their basic form.

Service-sector companies- To provide services

Types of inventory

- Direct material inventory – Direct materials in stock that will be used in manufacturing process

- Work in process – Goods partially worked on but not yet completed

- Finished goods inventory- Goods completed but not sold

Types of costs

- Direct material costs – The acquisition costs of all materials the eventually become part of the cost object and can be traced to the cost object in an economically feasible way.

- Direct manufacturing labor costs – The compensation of all manufacturing labor that can be traced to the cost object

- Indirect manufacturing costs – All manufacturing costs that are related to the cost object ( work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way ( manufacturing overhead costs)

Inventoriable costs – All costs a product that are considered assets in a company’s balance sheet when the costs are incurred and that are expensed as cost of goods sold only when the product is sold

Period costs- All the costs in the income statement other than COGS

Prime costs- All direct manufacturing costs

Conversion costs- All manufacturing costs other than direct material costs

Strategy – How an organization matches its own capabilities with opportunities in the marketplace to accomplish its objectives

Five forces:

- Competitors

- Potential entrants into the market

- Equivalent products

- Bargaining power of customers

- Bargaining power of input suppliers

Product differentiation- The organization’s ability to offer products or services its customers perceive to be superior and unique relative to the products or services provided by its competitors

Cost leadership- The organization’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste and tight cost control.

Reengineering- the fundamental rethinking and redesign processes to achieve improvements in critical measures of performance , such as cost, quality ,service ,speed and customer satisfaction

Balanced scorecard- Translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy

- Financial perspective : Increase in operating income from higher margins and growth

- Customer perspective : Customer satisfaction and market share

- Internal business process perspective : New product features, development time for new product , improvement in manufacturing processes , manufacturing quality, order-delivery time and on-time delivery

- Learning-and-growth perspective : Number of employees in product development , % of employees trained in process and quality management and employee satisfaction ratings

Nowadays, companies are more recognize about the good environmental and social performance helps to attract and inspire outstanding employee safety and health , uplift the reputation of the company ( long run)

Analysis of operating income

- Growth

- Price recovery

- Productivity

Engineered cost : The cause-and-effect relationship between the cost driver-output and the resources used to produce that output

Discretionary costs (1) Arise from periodic decision regarding the maximum amount to be occurred (2) No measurable cause-and-effect relationship between the cost driver-output and the resources used to produce that output

Eg. Advertising