Accounting Information: Costs, Production & More
Users of Accounting Information:
External Users: People outside the company, not responsible for its management, who have a legitimate interest in its performance. Examples include investors, employees, and lenders. This involves global financial information, showing aggregate financial assets and results.
Internal Users: Responsible for the company’s daily management. Accounting provides information to track progress and guide decisions. This involves specific, internal information for executives to support management decisions.
Cost Accounting: Part of management accounting focused on generating cost information for asset valuation and supporting company planning and control tasks.
Types of Productive Factors:
- Raw materials: Goods purchased externally, essential elements of the finished product.
- Other factors: Applied and added to raw materials during processing.
Production Capacity: The maximum production capacity determined by available physical and human resources. The level of activity refers to the current utilization of this capacity.
Opportunity Cost: The benefit forgone by not using a production factor in its best alternative application.
Cost Accounting: A set of resources involved in productive activity during a given period, captured, measured, and recorded according to cost accounting criteria.
Concept of Differential Cost and Expenditure:
- Periodic Expenditure: Consumption of goods and services incurred during business activity.
- Eliminations: Costs excluded from product cost due to their nature or valuation.
- Supplementary Elements: Factors not considered expenses in financial accounting.
Concept of Differential Cost and Investment: Investment is periodic expenditure not consumed, remaining in the company for future use.
Amortization (Depreciation): A systematic reduction in the value of property, plant, and equipment due to use, time, or technological advancements. Three variables are needed: useful life, depreciable amount, and the method of calculation (fixed fee or variable fee).
Calculation of Cost per Work Order: Used for non-repetitive products or those with long production periods. The cost is the sum of direct material costs + direct labor costs + manufacturing overhead costs.
Cost Calculations Based on Activities: Calculates a more objective production cost by allocating indirect costs. Key concepts include the activity (a set of tasks) and the cost driver (factors generating costs within each activity).
Costing Passing Sections: The production process is divided into sections with homogeneous activities, each with a responsible person. Costs are charged to products in later sections.
Professional Cost Model: Based on the company’s functional structure and production process. It involves classifying costs by type, allocating costs to sections, and identifying cost bearers.
Principles of Distributing Indirect Costs of Auxiliary Sections: The total cost allocated to a center equals its performance cost. The sum of primary section costs equals the sum of main section costs after allocating auxiliary section costs.
Practicality of Variable Costing Methods: Useful for:
- Profit maximization decisions
- Planning decisions considering cost, price, and volume changes
- Product decisions (substitutions, extensions, or changes)
- Cost-benefit analysis for short-term decisions