Definition of Cost, Cost Management Video Lecture | Cost Management - B Com

what we're going to be going over here
is an overview of our cost accounting
system but we're gonna be just
specifically looking at our inputs and
our inventory evaluations here so when
we're talking about a cost accounting
system really we have five different
parts here we have the input measurement
basis we have the inventory valuation
method cost accumulation methods cost
flow assumptions and recording our
inventory interval here but what we're
going to be looking at is our input
measurement basis here and we're going
to tie that into our inventory valuation
methods and just go a basic overview of
what these would be here so for our
input measurement basis that we would
have either actual historical costing
normal historical costing or standard
costing and then for our inventory
valuation methods we're going to either
have the throughput basis here to direct
variable or variable method and then a
full absorption or activity-based here
okay so let's start with our input
measurements here and we'll go through
each of those three here all right okay
so first for our actual historical cost
thing this is where our direct materials
our direct labor and our factory
overhead are going to go in at their
actual cost here and the refer to that
is the historical cost but the actual
cost that you occurred here for the
period and they're going to flow into
the inventory account here all at their
actual costs so actual historical cost
system only the historical costs or
those actual costs flow through the
inventory accounts historical costs
refer to the costs that have been
recorded the actual costs that you
experience for the period here for the
product that's flowing through at the
time okay now for our normal historical
costing this is where our direct
materials and our direct labor here
they're going to go in at their actual
cost here into the inventory account but
the difference is our factory overhead
this is going to go in at some applied
cost or some standard cost it's going to
flow into the factory overhead in any
difference between the standard that we
established in any
actual costs here for the period for
actually overhead are going to go into
an overhead variance account and these
overhead variances they would be like
close to some cost of goods sold or some
expense account at the end of the period
here but they any difference between
under or over applied factory overhead
here based on those variances is not
going into the inventory account again
normal historical costing uses the
historical cost for the direct materials
indirect labor but the overhead is
charged or applied to the inventory
using a predetermined overhead rate per
any activity measure that you'd have and
then our last input measurement would be
standard costing here now this is the
case where your direct material your
direct labor and all your factory
overhead they go in at an applied cost
or a predetermined cost they're going to
go into the inventory account in any
variances between your actual cost here
and the applied cost for direct
materials direct labor and factory
overhead are going to go into different
variance accounts here the direct
materials variances direct labor
variances and overhead variances and
then any under overapplied overhead or
variance here or overhead excuse me
materials labor and overhead here would
be those any under applied amounts would
be close to some expense account at the
end of the period like cost of goods
sold or something but the difference
between the applied cost that is the
standard cost that you're established
and the actual cost that you experience
here for your materials your direct
labor or direct material here direct
labor in fact we overhead they only go
in the only the applied standard goes
into our inventory account okay so for
standard the standard cost system all
manufacturing costs are applied or
charged the inventory using a standard
or predetermined price for prices and
the quantity so I should say here so the
difference between the applied cost and
the actual costs are charged to variance
accounts and the variances provide the
basis for the concept of accounting
control okay so next
let's move into our inventory valuation
methods now for our inventory valuation
methods starting with our throughput or
what they would call just in time
costing here this is the case where our
inventory only the direct material here
is going to be charged to the inventory
or capitalized in an inventory the
direct labor the factory overhead both
variable and fixed factory overhead go
to the expense there expensed when
they're incurred and then our selling
and administrative and our both the
variable in the fixed portion go to the
expense their expensed when they're
incurred so with the throughput or the
just-in-time costing only the direct
material goes and is recorded here in
your inventory so that's the only amount
that's being capitalized okay so with
the throughput method it was developed
to complement the concept referred to as
this Theory of Constraints
in this method only direct material
costs are charged to inventory all other
costs are expensed during the period
okay next for her to direct or variable
costing this is the case where the
direct materials your direct labor and
your factory overhead the variable
portion of your factory overhead gets
charged or recorded in inventory and
those are the amounts that would be
capitalized here now your factory
overhead the fixed portion in any
selling and administrative expenses both
the variable in the fixed portion get
charged to expense their expensed when
they're incurred so with direct or
variable method here only the variable
manufacturing costs are capitalized or
charged to the inventory the fixed
manufacturing costs flow into the
expense in the period that they're
incurred now for inventory valuation
using the full absorption costing method
this is where your direct materials your
direct labor your factory overhead both
the variable in your
portion here your factory overhead go
and are recorded in the inventory
they're capitalized in the inventory now
de selling an administration and both
variable and fixed portion of your
selling in an administration they go and
they're recorded as expense here and
their expense when they're incurred okay
so for the full absorption method here
all manufacturing costs are capitalized
in the inventory and charged to the
inventory and become assets this means
that these costs do not become expenses
until the inventory assault okay and
then finally looking at our
activity-based costing method here this
is the case here were your direct
materials your direct labor your factory
overhead variable and fixed factory
overhead and you're selling in
administration both your variable and
fixed portion here go and they're
recorded in an activity cost pool here
so everything here gets recorded in your
activity cost pool and then what it
would come out of the activity cost pool
and we go into inventory it would be
capitalized in the inventory account so
the point is here with activity-based
cost thing nothing is expensed nothing
everything goes into these activity cost
pools and then they get pulled out of
these activity cost pools and they go
into the inventory and then capitalized
there okay so with activity-based
costing that's this can be used as an
inventory valuation method and it has
improved accuracy is accomplished by
tracing the cost to the products through
the activities in other words the costs
are traced to the activity through
activity costing and then these costs
are traced into a second stage to the
products that really use these
activities okay so this is just an
overview here of looking at our
different inventory evaluation methods
and how our input how we determine our
different input costing methods