The Ultimate Cost Accounting Formulas Cheat Sheet

Introduction

Cost accounting is an essential aspect of financial management that helps businesses analyze and control their costs. As a student or professional in the field, having a cheat sheet of cost accounting formulas can be incredibly helpful. In this blog post, we will provide you with the ultimate cost accounting formulas cheat sheet that covers everything you need to know.

What is Cost Accounting?

Cost accounting is the process of recording, analyzing, and reporting all the costs incurred by a business. It helps businesses determine the true cost of their products or services, make informed decisions, and control expenses to maximize profitability. Understanding the key terminologies and concepts in cost accounting is crucial to effectively manage costs.

Cost Accounting Cheat Sheet

Our cost accounting cheat sheet compiles all the important terminologies and formulas you need to know. Let's dive into some of the key sections:

COST

The term 'cost' refers to the monetary value of resources consumed or sacrificed to achieve a specific objective. It can be further classified into direct costs and indirect costs. Direct costs are directly attributable to a product or service, while indirect costs are not directly traceable.

COST ASSIGNMENT

Cost assignment is the process of allocating costs to specific cost objects such as products, services, or projects. This helps determine the cost of each cost object and analyze profitability.

COST ALLOCATION

Cost allocation involves distributing indirect costs to various cost objects based on predetermined allocation bases. This allows for a fair and accurate distribution of indirect costs.

CLASSIFICATION BY BEHAVIOR

In cost accounting, costs can be classified based on their behavior. This includes fixed costs, which remain constant regardless of the level of production, and variable costs, which vary in direct proportion to the level of production.

COST DRIVERS

Cost drivers are the factors that cause changes in the cost of an activity or process. Identifying cost drivers helps in understanding the root causes of costs and managing them effectively.

SYSTEMS

Cost accounting systems refer to the methods and processes used to collect, record, and report cost information. There are various cost accounting systems, including job costing, process costing, and activity-based costing.

INVENTORY ACCOUNT

Inventory account refers to the account where the cost of goods held for sale is recorded. It includes the cost of direct materials, direct labor, and manufacturing overhead.

STRUCTURAL & EXECUTIONAL

Structural and executional costs are two types of costs incurred in the manufacturing process. Structural costs refer to the costs associated with maintaining the production capacity, while executional costs are the costs incurred during the actual production process.

PRODUCT & PERIOD

Costing can be done on a product basis or a period basis. Product costing involves allocating costs to individual products, while period costing involves allocating costs to specific time periods.

Cost Accounting Formulas

Our cheat sheet also includes various formulas that are commonly used in cost accounting. Some of the key formulas are:

• Prime Cost = Direct Materials Cost + Direct Labor Cost
• Total Production Cost = Direct Materials Cost + Direct Labor Cost + Manufacturing Overhead
• Conversion Cost = Direct Labor Cost + Manufacturing Overhead
• Cost of Goods Manufactured = Opening Work-in-Progress + Total Production Cost - Closing Work-in-Progress
• Goods Available for Sale = Opening Finished Goods + Cost of Goods Manufactured - Closing Finished Goods
• Cost of Goods Sold = Opening Finished Goods + Cost of Goods Manufactured - Closing Finished Goods
• Contribution Margin = Sales - Variable Costs
• Income Statement = Sales - Variable Costs - Fixed Costs

Conclusion

Cost accounting is a vital discipline for businesses to effectively manage their costs and maximize profitability. Our ultimate cost accounting formulas cheat sheet provides you with all the essential terminologies and formulas you need to know. By understanding and utilizing these formulas, you can make informed decisions and control costs to drive business success.