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Universidad Tecnolgica de Coahuila

Production Cost Accounting Class


Presented by:
Lic. Celina A. Fernandez Jimenez

December 11, 2013
OBJECTIVES:

General Objective: To know the basic tools used by cost accounting to
generate the information to be used in decisions-making, its function and
relationship with financial accounting and management accounting.

Specific Objective:

The student will be able to:
Make difference between cost accounting and financial accounting
Make difference between cost accounting and management accounting
To understand and define the cost accounting concept and its function
To mention the cost accounting benefits
To distinguish the differences between cost and spend
To understand in a general way the cost accumulation process of a
manufacturing enterprise
To mention and define the different cost classifications
To know the important points to consider when making a product cost.


CONTENT:

FINANCIAL ACCOUNTING CONCEPT

COST ACCOUNTING CONCEPT

MANAGEMENT ACCOUNTING CONCEPT

COST ACCOUNTING BASIC CONCEPTS

FORMULAS FOR COST ACCOUNTING

BASIC CHARTS

PROCESS COST EXAMPLES


ACTIVITIES:

TO READ AND UNDERSTAND THE CONCEPTS FOR FINANCIAL, MANAGEMENT AND
COST ACCOUNTING

TO IDENTI FY THE DIFFERENCES BETWEEN THE FINANCIAL, MANAGEMENT AND COST
ACCOUNTING.

TO REVIEW THE BASIC CHARTS OF A MANUFACTURING PRODUCTION PROCESS

TO LEARN THE BASIC FORMULAS OF COST ACCOUNTING PROCESS

TO REVIEW CHARTS TO UNDERSTAND COST PRODUCTION PROCESS

TO WORK ON EXAMPLES TO PRACTICE COST PRODUCTION PROCESS, ASSETS, SHEET
BALANCES, ETC.







FINANCIAL ACCOUNTING
It is an element series such as registration rules, accounting criteria, presentation forms,
etc. It Expresses in quantitative and monetary terms transactions made by an entity, to
provide useful and secure information to people making-decision.

MANAGEMENT ACCOUNTING
All the tools of the administrative subsystem get together in the management
accounting, this is an information system forwarded to make all functions easier to plan
and control, also for making-decisions. This accounting shows the budget preparation,
production cost and evaluation.

COST ACCOUNTING
This is a system that has techniques and procedures used to quantify the economic
sacrifice incurred by a business to generate incomes of making inventories.

FINANCIAL ACCOUNTING
Assets
* Inventories
Liabilities
Owners Equity
Balance Sheet
Income Statement
Sales
- Sales Cost
* Inventories
= Profit
- Expenses
= Net Income
COST ACCOUNTNG
MANAGEMENT
ACCOUNTING
Supports Financial
Accounting
Cost Accounting allows the inventory value process of materials, product in process
and finish goods to be presented in Balance Sheet.


1. In the Income Statement the cost accounting makes interference in cost
determining for sale costs.

2. It helps in evaluation of business by reviewing the profits generated by areas.

3. Provides bases for tools aplication by administrative accounting, such as
breakeven, etc.
COST PRODUCTION ELEMENTS

Direct Material

+ Direct Labor

+ Indirect Costs
----------------------------
= Production Cost

There are four basic types of cost that accountants need to keep in mind direct,
indirect, fixed, and variable costs. They are defined as follows:

Direct costs: Direct costs can be directly traced to the product. Material and labor costs
are good examples.

Indirect costs: These cant be directly traced to the product; instead, these costs
are allocated, based on some level of activity. For example, overhead costs are
considered indirect costs.

Fixed costs: Fixed costs dont vary with the level of production. A good example is a lease
on a building.

Variable costs: Unlike fixed costs, variable costs change with the level of production. For
example, material used in production is a variable cost.
Every cost can be defined with two of these four costs. For example, the cost to repair
machinery is an indirect variable cost. You decide if the cost is direct or indirect, and if
the cost is fixed or variable.

Checking out cost accounting basics
Just like in any discipline, you use specific cost accounting terms and ideas to communicate
meaning and understand procedures. Understanding basic concepts in crucial, so to start
using cost accounting analysis, you should be familiar with these terms:

Contribution margin: This term is defined as sales minus variable cost. When you subtract
your fixed costs from contribution margin, the amount left over is your profit.

Breakeven point formula: The breakeven point is the level of sales where your profit is
zero. The breakeven formula is sales minus variable cost minus fixed cost. You multiply
your sales per unit by units sold. You also multiply the variable cost per unit by
the same units sold. The sales level that makes the formula equal to zero is the breakeven
point.

Relevant range: Relevant range is a term that relates to machinery, equipment, or vehicles
in your business. Think of relevant range as the maximum level of use for the item you
operate in your business. Say you use a sewing machine. As long as you operate the
machine at or below the relevant range, it should operate normally. The machines cost
should come in at the level you expect. If you operate above the relevant range, the
machine wont operate as you expect. You need to invest in a second machine to operate
above the relevant range.

Digging deeper into cost accounting analysis
As you further your study, you use more complex cost analysis tools. From job costing to variances, the
more involved the job, the more involved your cost accounting tools become. Here are some
important tools youll use:

Job costing: This method of costing assumes that every customer job is different. Plumbers and
carpenters are good examples of businesses that use cost accounting. Because every job is different,
each customer job is assigned material, labor, and overhead costs.

Process costing: Companies use process costing when partially completed units are moved from one
production area to another. Process costing assumes that the products you produce are similar or
even identical.

Variance: A variance is a difference between your planned or budgeted cost and your actual results.
A favorable variance occurs when your actual costs are less than your budgeted or planned cost. An
unfavorable variance is when actual costs are higher than planned.

Inventoriable costs: These are costs that are directly related to the product. Production costs are
inventoriable costs for a manufacturer. If you are a retailer, your cost to purchase inventory is also an
inventoriable. Other costs you incur for goods are included, such as shipping and storage costs.

Must Know Formulas for Cost Accounting
To reduce and eliminate costs in a business, you need to know the formulas that are most often used
in cost accounting. When you understand and use these foundational formulas, youll be able to
analyze a products price and increase profits.

Breakeven Formula
Profit ($0) = sales variable costs fixed costs

Target Net Income
Target net income = sales variable costs fixed costs

Gross Margin
Gross margin = sale price cost of sales (material and labor)

Contribution Margin
Contribution margin = sales variable costs

Pre-Tax Dollars Needed for Purchase
Pre-tax dollars needed for purchase = cost of item (1 - tax rate)

Price Variance
Price variance = (actual price - budgeted price) (actual units sold)

Efficiency Variance
Efficiency variance = (Actual quantity budgeted quantity) (standard price or rate)

Variable Overhead Variance
Variable overhead variance = spending variance + efficiency variance

Ending Inventory
Ending inventory = beginning inventory + purchases cost of sales


Ca X S.A. de C.V.
Income Statement
1 de Enero al 1 Diciembre de 2013


Total Sales $121,164.00
Sales Cost ($ 94, 380.00)
------------------------------------------------------------
Profit $ 26,784.00

Operation Expenses ($ 10,114.00)
------------------------------------------------------------
Operation Profit $ 16,670
---------------------------------------------------------------
Financial Expenses ($ 2,760.00)
--------------------------
Profit befor taxes $ 13,910.00
Taxes ($ 2,782.00)
------------------------
Final Profit $ 11,280.00

EJEMPLO
SUPPORT SUGGESTIONS:

Spanish English Dictionary
English English Dictionary
Internet

EVALUATION CRITERIA: According to FDA-84 Form provided.


REFERENCES:
CONTABILIDAD DE COSTOS / ALSO S. TORRES/ MCGRAW HILL

COSTOS I / CRISTOBAL DEL RIO GONZALEZ/ ECAFSA

INTERNET /CONTABILIDAD FINANCIERA / GERARDO CANTU, NORA E.
ADRADE DE GUAJARDO/ QUINTA EDICION

INTERNET / WWW.ACCOUNTINGCOUCH.COM