MANAGERIAL ACCOUNTING

BACC 8A
COVERAGE:
• OVERVIEW AND BACKGROUND
• COST TERMS AND CONCEPTS
 WHY DO WE VENTURE INTO BUSINESS?

MOST COMMON AND PRACTICAL REASON:

TO EARN MONEY

PROFIT

business competition
WHAT DO BUSINESSES COMPETE FOR?

CUSTOMER SATISFACTION
-the measure of how products and services supplied
by a company meet or
surpass customer expectation.

BETTER PRODUCT QUALITY

 TO REMAIN COMPETITIVE AND PROFITABLE,
MOST BUSINESSES ADOPT AND APPLY THE 4Ps
4Cs
OF MARKETING

oPRODUCT CUSTOMER
oPLACE CONVENIENCE
oPRICE COST
oPROMOTION COMMUNICATION
In order to cope with the ever-changing demands of consumers…
MANAGERIAL ACCOUNTING DEFINED

 Caters to the needs of internal users

Note: Financial Accounting (Fundamentals of Accounting
subject) caters external users.
Not governed by any accounting standard
management standards
May differ from one company to another
 THE COURSE: MANAGERIAL ACCOUNTING
Cost Terms and Concepts
Cost Behavior and Cost-Volume Profit Analysis
Short-term Decision Making
Short-term Budgeting
Financial Statement Analysis
COST TERMS AND CONCEPTS

COST
-the money or resources sacrificed,
forgone, or paid by a business to
achieve a specific objective
• Products
• Services
COST TERMS AND CONCEPTS

COST OBJECT
-the cost of any thing which is to be measured.
-any item such as a product, department,
customer, or a project for which cost is
determined and assigned.
COST TERMS AND CONCEPTS

COST ACCUMULATION
-accumulation of cost information
that will be done in a systematized
manner.
COST TERMS AND CONCEPTS

COST ASSIGNMENT
-the allocation of costs to the
activities or objects that triggered the
incurrence of the costs.
TYPES OF COST CLASSIFICATION

1. IN RELATION TO PRODUCTS
2. FOR EXTERNAL REPORTING PURPOSES
3. FOR PREDICTING COST BEHAVIOR
4. FOR DECISION-MAKING
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

MANUFACTURING
-the total cost of the product
COST
 Direct materials
 Direct labor
 Manufacturing overhead
 Indirect materials
 Indirect labor
 Other costs
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

MANUFACTURING COST
 leather
 sole DIRECT
 rubber/plastic MATERIALS
 shoe laces
 glue
 polishing supplies INDIRECT
 cleaning supplies MATERIALS
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

MANUFACTURING COST
 laborers from cutting department DIRECT
 laborers from assembly department LABOR
 supervisors
INDIRECT
 quality inspectors LABOR
 factory insurance
OTHER OVERHEAD
 factory electricity
COSTS
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

PRIME COST

 Direct materials

 Direct labor
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

CONVERSION COST

Direct labor

Manufacturing overhead
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

MANUFACTURING COST
 Direct materials
PRIME COSTS
 Direct labor
 Manufacturing overhead
1.
COST CLASSIFICATIONS RELATED TO PRODUCTS

MANUFACTURING COST
 Direct materials
 Direct labor CONVERSION
 Manufacturing overhead COSTS
2.
COST CLASSIFICATIONS FOR EXTERNAL REPORTING

 Period Costs
-normally referred to as operating expenses.
 Product Costs
-assignable to the product which will become
an expense when the product is sold.
When the products are not yet sold, these are
considered assets.
2.
COST CLASSIFICATIONS FOR EXTERNAL REPORTING

 Period Costs
EXAMPLES OF
SELLING
EXPENSES
2.
COST CLASSIFICATIONS FOR EXTERNAL REPORTING

 Period Costs

EXAMPLES OF
ADMINISTRATIVE
EXPENSES
2.
COST CLASSIFICATIONS FOR EXTERNAL REPORTING

 Product Costs
ASSETS-INVENTORY/
SUPPLIES
when sold

EXPENSE
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

 Variable Costs
-variable total cost in proportion to the volume
produced
 Fixed Costs
-fixed total cost
 Mixed Costs
-fixed cost until it reaches a certain point where it turns
into a variable cost
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

 Variable Costs
4 square feet per pair
x 10 planned production
40 square feet
x P500 per square foot
P 500 per square foot
P20,000
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

 Variable Costs
4 square feet per pair
x 25 planned production
100 square feet
x P500 per square foot
P 500 per square foot
P50,000
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR
Notice that the variable cost PER UNIT of P500
does not change (fixed) but the variable cost
IN TOTAL is variable depending on the
number of units.
4 square feet per pair 4 square feet per pair
x 10 planned production # units x 25 planned production
40 square feet 100 square feet
x P500 per square foot fixed x P500 per square foot
P20,000 variable total cost P50,000
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

To summarize:
variable cost PER UNIT – FIXED
variable cost IN TOTAL - VARIABLE
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

 Fixed Costs
P 5,000 fixed tax/10
pairs, planned
production
= P500 per pair of
shoes

P 5,000 total fixed tax

3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

 Fixed Costs
P 5,000 fixed tax/25
pairs, planned
production
= P200 per pair of
shoes

P 5,000 total fixed tax

3.
Notice that the fixed cost IN TOTAL of P5000
does not change (fixed) but the fixed cost
PER UNIT is variable depending on the
number of units produced.
P 5,000 fixed tax P 5,000 fixed tax
/10 /25
pairs, planned pairs, planned
production production
= P500 per pair of shoes = P200 per pair of shoes
3.COST CLASSIFICATIONS FOR PREDICTING COST
BEHAVIOR

To summarize:
fixed cost PER UNIT – VARIABLE
fixed cost IN TOTAL - FIXED
4.
COST CLASSIFICATIONS FOR DECISION-MAKING

 Differential cost
 Differential revenue
 Opportunity cost
 Sunk cost
 Avoidable cost
TRUE OR FALSE

The sum of all costs of manufacturing

costs except direct materials is called
manufacturing overhead.
TRUE OR FALSE

The sum of all costs of manufacturing

costs except direct materials is called
manufacturing overhead.
TRUE OR FALSE

Conversion cost is the sum of direct

labor and manufacturing overhead.
TRUE OR FALSE

Conversion cost is the sum of direct

labor and manufacturing overhead.
TRUE OR FALSE

Prime cost is the sum of direct labor

and manufacturing overhead.
TRUE OR FALSE

Prime cost is the sum of direct labor

and manufacturing overhead.
TRUE OR FALSE

Direct costs are often difficult to trace

to the specific cost object under
consideration.
TRUE OR FALSE

Direct costs are often difficult to trace

to the specific cost object under
consideration.
TRUE OR FALSE

Thread used in the production of

mattresses, an indirect material, is
classified as manufacturing overhead.
TRUE OR FALSE

Thread used in the production of

mattresses, an indirect material, is
classified as manufacturing overhead.
TRUE OR FALSE

A variable cost is constant if

expressed on a per unit basis but the
total dollar amount changes as the
number of units increases or
decreases.
TRUE OR FALSE

A variable cost is constant if

expressed on a per unit basis but the
total dollar amount changes as the
number of units increases or
decreases.
TRUE OR FALSE

All costs in a merchandising company

are period costs.
TRUE OR FALSE

All costs in a merchandising company

are period costs.
MCQ

The one cost that would be classified as part of

both prime cost and conversion cost would be:
A) indirect material.
B) direct labor.
C) direct material.
D) indirect labor.
MCQ

The one cost that would be classified as part of

both prime cost and conversion cost would be:
A) indirect material.
B) direct labor.
C) direct material.
D) indirect labor.
MCQ

Prime costs consist of:

A)direct materials and the variable portion of
manufacturing overhead.
B) direct labor and indirect labor.
C) indirect labor and the fixed portion of
manufacturing overhead.
D)direct labor and direct materials.
MCQ

Prime costs consist of:

A)direct materials and the variable portion of
manufacturing overhead.
B) direct labor and indirect labor.
C) indirect labor and the fixed portion of
manufacturing overhead.
D)direct labor and direct materials.