FINANCIAL ACCOUNTING & MANAGERIAL ACCOUNTING COMPARED

Financial Accounting Managerial Accounting

 External  Internal
 History-related  Future-oriented
 GAAP-based  More informal
 Mandatory  Discretionary
 General purpose  Special purpose

WHERE IS COST ACCOUNTING?

Cost accounting is an expanded financial accounting and an overlap between

financial accounting and managerial accounting.

DIFFERENT COST CLASSIFICATIONS

Costs in Relation to Product (Product Cost, Manufacturing Cost)

1. Direct Materials Cost

2. Direct Labor Cost
3. Factory Overhead

Costs in Relation to Volume of Production

1. Fixed Cost/Overhead – costs that remain constant in total regardless of

level of activity.

Units Unit Cost Total Cost *unit cost decreases proportionately with the
increase in the level of activity while the total
1 50, 000 50, 000 cost remains constant
2 25, 000 50, 000
3 15, 667 50, 000

2. Variable Cost/Overhead – costs that vary in total based on the level of

production.

Units Unit Cost Total Cost *total cost increases proportionately as the level
of activity increases while the per unit cost
1 50, 000 50, 000 remains constant
2 50, 000 100, 000
3 50, 000 150, 000 3. Semi-variable Cost/Overhead –
combination of fixed and variable
costs.
Costs in Relation to Manufacturing Departments or Other Segments

1. Direct Departmental Cost – traceable to a specific department

2. Indirect Departmental Cost – not traceable to a specific department &
requires allocation

Costs in Relation to an Accounting Period

1. Capital Expenditures – benefits future periods (capitalized)

2. Revenue Expenditure – benefits only the current period (expensed)

Costs in Relation to a Decision, Action, or Evaluation

1. Standard Cost – predetermined estimate of cost on a unit basis

2. Budgeted Cost – predetermined estimate of cost in total

ACCOUNTING FOR LABOR

Provisions of the Labor Code

1. Weeks of labor  52 weeks (365/7)

2. Overtime pay  Regular rate + 25% of regular pay
3. Holiday and Sunday works  100% regular pay
4. 13th month pay is mandatory
5. Minimum vacation leave  5 days
6. Minimum sick leave  5 days
7. Working hours subject to differential/shift pay  10pm-4am & 2pm-10pm

Classifications of Labor

1. Direct Labor
2. Indirect Labor
3. Labor Losses
4. Labor Overhead

Labor Overhead Accounting

1. Overtime

Regular pay P80/hour

Overtime pay 30%
Hours worked 45 hours (40, regular)

Computation:
Regular pay  P80 x 40 = P3, 200
Overtime pay  P80 x 5 = P400
(P80 x 30%) x 5 = P120

Entry:

Work in Process 3, 600

Factory Overhead Control 120
Payroll 3, 720

2. Bonus

2010, profit P260, 000

Bonus 1%
Weekly pay P500

Computation:

Bonus  P260, 000 x 1% = P2, 600

Weekly accrual for bonus  P2, 600/52 = P50

Entry:

Work in Process 500

Factory Overhead Control 50
Payroll 500
Liability for Bonus 50

3. Vacation/Sick Pay

Weekly pay P6, 000

The employees are entitled to 2 weeks vacation leave.

Computation:

Vacation Pay  P6, 000 x 2 = P12, 000

No. of weeks to accrue  52 – 2 = 50
Weekly accrual for vacation pay  P12, 000/50 = P240/week

Entry:

Work in Process 6, 000

Factory Overhead Control 240
Payroll 6, 000
Liability for Vacation Pay 240
4. Differential (Shift) Pay

Regular rate P50/hour

Shift Premium P10/hour

Computation:

P50 x 40 = P2, 000

P10 x 40 = P400

Entry:

Work in Process 2, 000

Factory Overhead Control 400
Payroll 2, 400