Transcript Manufacturing Costs and Job

Cost Terms, Concepts,
and Classifications
UAA – ACCT 202
Principles of Managerial Accounting
Dr. Fred Barbee
Chapter
Specify “Tag” the Cost
 We
need to place
an adjective (tag)
on the cost to
identify what it is.
Cost Flows in a Manufacturing Firm
Direct
Materials
Direct
Labor
Mfg.
Overhead
Work-inProcess
Finished
Goods
Cost-of
Goods Sold
Cost Flows in a
ManufacturingCosts
Firm
Manufacturing
Direct
Materials
Direct
Labor
Mfg.
Overhead
Costs incurred in the
manufacture of goods
being produced.
Work-inProcess
Finished
Goods
Cost-of
Goods Sold
•Known as product
(inventoriable) costs.
•They are expensed
when the product is
sold.
Those
that become
Cost Flows
in a materials
Manufacturing
Firman
integral part of the finished
product and can be physically
traced to the product.
Direct
Materials
Direct
Labor
Mfg.
Overhead
Those
factory labor costs that
can be physically
traced toCost-of
the
Work-inFinished
Process
Goods Sold
production ofGoods
the finished
product.
All
costs associated with the
manufacture of a product
except direct materials and
direct labor.
Direct
Materials
•Known as Period
Direct
Work-incosts.
Labor
Nonmanufacturing
Costs Cost-of
Finished
Process
Goods
Goods Sold
Costs incurred for
•They are
Mfg.
other than production
expensed
in
Overhead
activities.
the period in
which theySales
are
Cost of Goods Sold
incurred. Income
= Gross Margin
Statement
=
Nonmanufacturing
Expenses
Net Income
Direct
General
Materials
& Administrative Expenses
All executive, organizational, and clerical
costs associated
with the general
Direct
Work-inFinished management
Cost-of
Labor
Goods
Goods Sold
of the firm. Process
Mfg.
Selling
& Distribution Expenses
Overhead
All costs necessary to secure customer
orders andSales
get the products/services to the
customer.
Cost of Goods Sold
-
Income
Statement
=
=
Gross Margin
Nonmanufacturing
Expenses
Net Income
Direct
Materials
Direct
Labor
Work-inProcess
Finished
Goods
Cost-of
Goods Sold
Mfg.
Overhead
Sales
Income
Statement
=
=
Cost of Goods Sold
Gross Margin
Nonmanufacturing
Expenses
Net Income
Period
Costs
Manufacturing Costs
Manufacturing Costs
Materials that are directly
traceable to the goods or
services being produced
(physical observation).
Steel in cars, wood in furniture, etc.
Direct Materials
 DM
in Theory
 Every
 DM
component
in Reality
 Must
apply cost-benefit rule
DM – What is Cost?
 The
invoice price of the raw
materials,
 Shipping
 Import
costs,
duties, and
 A reduction
for any allowable
discounts for prompt payment.
Manufacturing Costs
Labor that is directly
traceable to the goods
being produced.
Assembly line workers, chefs, pilots
Manufacturing Costs
All production costs other
than direct materials and
direct labor.
Utilities, security, janitorial, etc.
MOH – Other Names
 Overhead
 Burden
 Indirect
Manufacturing Costs
 Factory
Expenses
MOH – A Few Examples

Factory Supervision,

Factory Telephone, heat, light, power,

Factory bookkeeping salaries,

Insurance

Depreciation/factory equipment

Indirect materials, labor.
Nonmanufacturing Costs
 All
costs not associated with the
production of goods.
 Selling
Costs
 Administrative
Costs
Cost Flows in a Manufacturing Firm
Manufacturing Costs
Balance Sheet
Unused
DM
DL
Used
WIP
DM Inv.
Unfinished
MOH
FG Inv.
Sales
-
Income
Statement
WIP Inv.
COGS
=
Gross Margin
-
S&A
=
Net Income
Period
Costs
Cost Flows in a Manufacturing Firm
Manufacturing Costs
Balance Sheet
Unused
DM
DL
Used
WIP
MOH
DM Inv.
Unfinished
WIP Inv.
FG Inv.
Sales
Product Costs: Costs assigned
to products (i.e.,
COGS
Work in Process Inventory.
Income
Statement
=
Gross Margin
They “attach”
to units of product and
- themselvesS&A
remain with the product until it is sold.
=
Net Income
Cost Flows in a Manufacturing Firm
Manufacturing Costs
Balance Sheet
Unused
DM
DL
Used
WIP
MOH
Unfinished
WIP Inv.
FG Inv.
Sales
-
Income
Statement
DM Inv.
COGS
=
Gross Margin
-
S&A
=
Net Income
Cost Flows in a Manufacturing Firm
Manufacturing
Costs
Period Costs:
Sheet
Expired non productBalance
costs.
Unused
DM charged to expense in the period
DM Inv.
Always
in
which they occur.
Unfinished
Used
DL
WIP
WIP Inv.
MOH
FG Inv.
Sales
-
Income
Statement
COGS
=
Gross Margin
-
S&A
=
Net Income
Period
Costs
Product Costs Vs. Period Costs
DM, DL, MOH, S&A Costs
Product
Costs
Period
Costs
DM, DL
MOH
S
&
A
DM, DL
MOH
DM, DL
MOH
S
&
A
S
&
A
Work-inProcess
Finished
Goods
Selling and Administrative Costs
Sale
DM ,DL
MOH
Expensed in the current
period.
Cost of Goods
Sold
Balance Sheet Presentation
Variable Costs

Total costs that vary in direct proportion
to changes in the level of activity within
the relevant range.
Total Variable Costs
$
Volume (Activity Base)
Per Unit Variable Cost
$
Volume (Activity Base)
Fixed Costs

Costs that remain constant in total,
regardless of the changes in activity
within the relevant range.
Total Fixed Costs
$
Volume (Activity Base)
Per Unit Fixed Costs
$
Volume (Activity Base)
Curvilinear Costs and the
Relevant Range
Economist’s
Curvilinear
Cost Function
$
Accountant’s
Straight-Line
Approximation
Relevant Range
Volume (Activity Base)
Anything for which a separate
measurement
of costs is desired
Direct
(products, customers,
Costs
departments, etc.)
Indirect
Costs
Cost
Object
Direct
Costs
Costs that are related to and
directly traceable to the
identified cost objective.
(Direct Material, Direct Labor)
Cost
Object
Indirect
Costs
Costs that are related to, but not
traceable to, the identified cost
objective. (Manufacturing
overhead)
Different Costs for
Different Purposes
Product Costing Definitions
Value-Chain
Product Costs
Operating
Product Costs
Traditional
Product Costs
Production
Production
Production
Marketing
Marketing
Customer Service
Customer Service
Research and
Development
Pricing Decisions
Product-Mix Decisions
Strategic Profitability
Analysis
Strategic Design
Decisions
Tactical Profitability
Analysis
External Financial
Reporting
Value-Chain
Product Costs
Research and
Development
Production
Marketing
Customer Service
Pricing Decisions
Product-Mix Decisions
Strategic Profitability
Analysis
If making any of
these types of
decisions, I need to
look at all costs.
Operating
Product Costs
Production
Marketing
Customer Service
Strategic Design
Decisions
Tactical Profitability
Analysis
On the other hand,
for these decisions,
we might be able to
ignore some of the
costs.
Product Costing Definitions
Value-Chain
Product Costs
Operating
Product Costs
For external
Research and
financial
Development reporting,
Production
Production
we need only these
Marketing
Marketing
costs
– because
Customer Service
Customer Service
that is what GAAP
Pricingsays
Decisions we need.
Strategic Design
Product-Mix Decisions
Decisions
Strategic Profitability
Analysis
Tactical Profitability
Analysis
Traditional
Product Costs
Production
External Financial
Reporting