CMS Lecture 1: Intro to Cost Accounting

Fixed costs

such as rent, advertising, insurance and office supplies, tend to remain the same regardless of production output.

Variable costs

are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases.

Indirect costs

(also called overheads) - those that are related to a particular cost object that cannot be traced easily/economically to the cost object. Allocated to the cost object using a cost allocation method.

Finished Goods (FG)

Goods that have been fully completed which have not been sold. Opening FG + COGM - Closing FG = Cost of Goods Sold (COGS)

Work in Process (WIP)

Goods which have been partially completed in the production process Opening WIP + New Production - Closing WIP = Cost of Goods Manufactured (COGM)

Performance measurement system (PMS)

Monitors financial and non-financial (e.g. quality, environmental, innovation) performance by tracking actual performance against budgeted targets

Materials used in the production process.

Opening RM + Purchases - Closing RM = RM Used

Cost management system

Provides information to actively manage resources and increase organisational value

Budgeting system

Used to estimate revenues and costs for organisational units

Cost accounting system

Used to estimate the costs of goods and services, activities, departments etc.

Period cost

are non-product costs that are expensed in the period in which they are incurred.

Conversion Costs

comprise all manufacturing costs for transforming direct materials into finished goods (i.e. MOH + DL)

Financial accounting

focuses on reporting to shareholders and regulatory bodies and is guided by generally accepted accounting principles. This information is used for decision making by those external to the organisation.

Capitalised inventoriable costs

include the purchase of goods held for resale (not sold by the end of the accounting period), and the manufacturing costs associated with the acquisition and conversion of raw materials into completed goods.

Prime Costs

includes all direct manufacturing costs (i.e. DL +DM)

Management accounting

measures and reports financial and non-financial information that assist managers in fulfilling the goals of the organisation. This information is used for decision making by those internal to the organisation.

Period costs

non-product costs that are expensed in the period in which they are incurred. Non-product costs means that costs are not a necessary part of the manufacturing process. They are usually associated with the selling function of the business or its general administration.

Product costs:

prime costs +conversion costs. A manufacturer's product costs are the direct materials, direct labour, and manufacturing overhead used in making its products. The costs of direct materials, direct labour, and manufacturing overhead are also "inventoriable" costs, since these are the necessary costs of manufacturing the products or inventory.

Direct costs

those that are related and can be traced easily/economically to the cost object. These costs are assigned to the cost object directly, based on the measured quantity of the resources consumed.