Accounting Objectives, Cost Definitions and Internal Cost Accounting Principles

Objectives and Definition of Cost Accounting: Internal Accounting

Cost accounting is the part of accounting that occupies the company's technical-economic problematic.

Objectives

• The recording, measurement, valuation and presentation of the transactions corresponding to the internal activity of the company.
• The valuation of the different outputs and productive processes.
• The analysis and control of the processes that generate production costs.
• Internal calculation as the difference result, with knowledge of the objective and how much each element contributed to obtaining it.
• Providing relevant information for strategic decision making.
• The study and establishment of the necessary accounts beyond the previous ones for compliance with fiscal purposes.

Under what circumstances is it convenient to apply the specific price criterion for valuation?

This criterion consists of discussing the purchase price of the starting goods consumed in the process, and if possible, this is done through the specific purchase price valuation. Goods of this type are advisable in the previous process.

Current Products and Finished Products

Current products: those found in the formation or processing activity at the closing of the fiscal year, which may or may not be finished products or byproducts, waste or recovered materials.

Finished products: those manufactured by the company and not normally destined to be sold, which are not the object of further processing, incorporation or transformation.

Ongoing Production and Finished Production

Ongoing production: what is the unfinished process of elaboration.

Finished production: has not reached its final stage in the productive elaboration process. However, production in progress differs from the first operation within the transformation stage, and production located in the unfinished process is produced in the form of successive transformation operations.

Magnitudes of External Scope: Concepts

Purchases: the amount of goods and services acquired from the outside world, whether or not they are used in the same period, provided that the subjects' actions are under the buyer's will, in the form and under the limitations established at purchase.

Expenditure: the monetary amount expressed in DINAR (currency).

Sales: the quantity of products sold to the outside world by the company.

Income: the monetary amount of the sale, expressed in DINAR (currency).

Payment: when the company transfers a quantity of DINAR to the outside world (financial).

Collection: when the company receives a quantity of DINAR from the outside world (financial).

Magnitudes of Internal Scope

Consumption: the amount of goods applied in productive processes in a given period.

Period cost: the monetary amount of consumption, expressed in DINAR.

Production: the quantity of goods manufactured by the company in a period.

Production value of the period: the monetary amount of production, expressed in DINAR.

Cost of Direct Labor: Which Components Make It Up, and How Is It Calculated? Distinction Between Direct and Indirect Labor

• Direct labor cost is the consumption, valued in DINAR, of human work applied to the production or provision of goods or services by the company.
• Components of direct labor: wages and salaries, social security paid by the company, personal training costs, and other supplementary remunerations.
• Calculation of daily direct labor:
  Effective daily cost = total labor cost of the period / total effective days of the period.
  Total days = natural effective days of the period minus non-working days.
  Non-working days = holidays, Sundays, one half of Saturdays, etc.
• Direct labor (DL): labor that is practical and possible to identify with a product, job, or specific process.
• Indirect labor (IL): labor that is not practical and/or not possible to identify with a product, job or specific process.

Whenever the difference is always economically profitable to identify with a particular order or process, and this is applied sufficiently in time, it will be considered direct.

In Cost Accounting, How Are Equivalent Units Calculated? Which Unit Is Used and How Is It Expressed?

In the amortization process within the internal scope, a time-based indicator is used.

Work is expressed in equivalent hours at 100% capacity and a performance rate.

Determined as: E = n * coef. performance, where E = equivalent hours, n = natural hours, and % capacity.

Equivalent hour = effective hour; natural hour.

What Is Permanent Inventory and What Are Cost Statistics?

Permanent inventory: the record that tracks the movements of documents and the existence of goods in the company.

Cost statistics: a box for allocating indirect costs, with no formalized format or accounting record. It is a double-entry table where the allocation of costs is recorded.

What Types of Costs Relate to Production Fluctuation? Indicate Costs Consistently

These are related to semi-fixed, irreversible costs. The result obtained consists of a level of production, the cost incurred being the total cost. If we reduce the level of production, the path of total costs does not follow the same way, but a regressive line is followed above a flat one.

Discontinuous Fixed Piece-Rate System

A fixed amount is paid to the worker as compensation once the production limit determined by production is reached. This fixed amount is paid as compensation, with a maximum remuneration the worker can reach before the limit is reached. The disadvantage is that the worker must exert effort beyond the strict limit to obtain an additional premium.

Time-Based Wage System

Remuneration consists of paying the worker for work performed over time, based on attendance information in the company. In this way it is independent of the production obtained. Its advantage is ease of counting.

Quantity-Based Wage System

Fixed piece rate: this system guarantees the worker a fixed amount for each unit of product obtained. The amount is based on the normal rate of production per hour considered. It allows unlimited earnings for the employee.

Disadvantages: it involves intensive use of machinery and, consequently, greater wear.

Rational Alternative Methods of Imputation

The alternative is to include the final cost as variable costs and fixed costs, but only to the extent that the existing relationship between production volume and the normal production volume defined by the company is implemented.

In this form, fixed costs are allocated to the output product according to the capacity actually used. The surplus of fixed costs is charged to the period.

Calculation of Process Costs

Periodization: consists of a temporal distribution of costs. Both income categories and both debits are recorded in the account and result from a reference unit at the same time. This is necessary, and for this the magnitudes must be made commensurable.

Classification, location and booking:

• Direct charges: direct allocation (assignment) to final cost.
• Indirect charges: allocation (distribution) to product and period.
• Non-allocable charges.
• Imputation scheme: rational distribution.
• Direct costs: cost drivers and resulting costs.
• Indirect variable costs.
• Indirect fixed costs.

Is the Following Statement True or False?

The statement that expenditure always coincides with purchase or consumption is false, because when I buy, expenditure and purchase occasions do not always coincide. When I buy, spending on a good or service may not coincide with the price of its acquisition or production cost.

What Is a Work Unit and What Is It Used For? What Is the Allocation Key Used For?

Work unit: a unit of activity measured by the place where it is performed, used to calculate the cost and to allocate costs and indirect costs to cost drivers.

Allocation key: the proportion of each class that requires a portion of indirect cost for its allocation. It serves as the first estimate of the most accurate consumption rather than an individual consumption.

True or False: The Work Unit Allows Direct Costs to Be Distributed Among Manufactured Products

False, since direct costs do not require the application of any work unit or allocation key, as the drivers are imputed. The work unit is used to relate costs to cost drivers.