Notes: Introduction to Cost Accounting Part 2 Two Basic Stages to Account for Costs in a Cost System 1.

. Cost Accumulation 2. Cost Assignment a. Cost tracing assignment of direct costs to a particular cost object. b. Cost allocation assignment of indirect costs to a particular cost object. Methods for Separating Mixed Costs Management usually needs to separate the mixed cost into its fixed and variable components. 1. High-low method the usage of the two extreme data points: the highest point and the lowest point. The advantage of this method is its simplicity. However, the results of this method might lead to possible inaccuracies since it ignores all data points other than the highest and the lowest activity levels. 2. Scattergraph method involves estimating the fixed and variable elements of a mixed cost visually on a graph. It requires that all recent, normal data observations be plotted on a cost (y-axis) versus activity (x-axis) graph. 3. Method of Least Squares requires the use of 30 or more past data observations for both the activity level (in units) and the total costs. The goal of least squares is to define a line so that it fits though a set of points on a graph, where the cumulative sum of the squared distances between the points and the line is minimized (hence the name least squares). Classes of Inventories in a Manufacturing Firm Class of Inventory Materials Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Statement A company must determine first how much of the available supply of materials (both direct and indirect) was transferred into production during the period. Stage of Production Work not started Work started but not completed yet Fully completed work Subsidiary Records Material ledger card Job order cost sheet (job order costing) Cost of production report (process costing) Finished goods ledger card

Schedule of Direct Materials Used Materials Inventory, Beginning Add: Net Purchases of Materials Materials Available for Use Less: Materials Inventory, End Direct Materials Used/ Raw Materials transferred to Work in Process P xx xx xx xx xx

Schedule of Work in Process Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs Work in Process, Beginning Less: Work in Process, Ending Cost of Goods Manufactured P xx xx xx xx xx xx xx

Schedule of Cost of Goods Sold - Manufacturing Cost of Goods Manufactured Add: Finished Goods, Beginning Total Goods Available for Sale or TGAS Less: Finished Goods, Ending Cost of Goods Sold P xx xx xx xx xx

Schedule of Cost of Goods Sold - Merchandising Merchandise Inventory, Beginning Add: Net Cost of Purchases Total Goods Available for Sale or TGAS Less: Merchandise Inventory, End Cost of Goods Sold P xx xx xx xx xx