➢Before, cost accounting only applied to
manufacturing. But nowadays, it depends
on the style and type of an organization’s
cost concepts.
➢Main concept: expense is a cost but not
every cost is an expense.
Cost Objects- any item or activity for which costs
are accumulated and measured.
➢The fundamental question about cost that is
answered by this is ‘the cost of what’.
Example of cost object:
● Product
● Batch of like units
● Customer order
● Contract
● Product line
● Process
● Department
● Division
● Project
● Strategic goal
TRACEABILITY COSTS TO COSTS OBJECTS
●Direct Cost- refers to costs that can be
directly attributed to a specific product.
●Indirect Cost- no fixed quantities.
Traceability varies depending on the degree and
the product guided by these 2 principles.
CLASSIFICATION OF COSTS
● Product
● Volume of Production
● Manufacturing Departments,Processes,
Cost Centers, or Other Subdivisions
● Accounting Period
● A Decision, Action, or Evaluation
COST IN RELATION TO THE PROJECT
● Manufacturing Costs (Production Costs)
- Direct Materials
- Direct Labor
- Factory Overhead
- Indirect Materials
- Indirect Labor
➢Remember to memorize the order because
adding up direct materials and direct labor
would result in prime costs.
➢Adding direct labor and factory overhead
would result in conversion costs.
- Conversion cost is the cost to
convert the raw or direct materials
into a product.
➢TAKE NOTE: both indirect labor and
materials must be attributed to production
itself otherwise it may fall into commercial
expenses.
● Commercial Expenses
- Marketing
- Administrative
COST IN RELATION TO THE VOLUME OF
PRODUCTION
● Variable Costs
● Fixed Cost
● Semi-variable Costs
Variable costs change in proportion to changes in
the level of activity. The said variable costs are
fixed when talking about per unit basis but changes
in terms of sum when level of production changes.
➢Variability refers to the total cost and not to
the per unit cost.
➢Fixed costs is the opposite of variable cost
since the total amount will not change
regardless of the level of activity.
➢Fixed costs may be thought of as the cost
of being in business, while variable costs
are the cost of doing business, and
semi-variable costs contain both variable
and fixed costs elements.
COST IN RELATION TO MANUFACTURING
DEPARTMENTS OR OTHER SEGMENTS
●Producing and Servicing Departments-
refers to manual and machine operations
whereas service departments refers to
service rendered for the benefit of other
departments.
