Transcript MGT430 LECTURE 27.ppt

Previous Lecturer
• Ratio analysis
• Working capital is the excess of current assets
over current liabilities
• Current ratio measures the short-term debtpaying ability of the company
• Quick ratio is like the current ratio but
excludes current assets such as inventories
that may be difficult to quickly convert into
cash
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Previous Lecturer
• Debt ratio is a measure of creditor’s long-term
risk
• Uses and Limitations of Financial Ratios
• Measures of Profitability
• Return on Assets ratio is generally considered
the best overall measure of a company’s
profitability
• This measure indicates how well the company
employed the owners’ investments to earn
income
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Previous Lecturer
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Sources of Financial Information
Accounts Receivable Turnover
Number of Days’ Sales in Receivables
Inventory turnover
Number of Days’ Sales in Inventory
Ratio of Fixed Assets to Long-Term Liabilities
Ratio of Liabilities to Stockholders’ Equity
Number of Times Interest Charges Earned
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Previous Lecturer
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Ratio of Net Sales to Assets
Rate Earned on Total Assets
Rate Earned on Stockholders’ Equity
Rate Earned on Common Stockholders’ Equity
Earnings Per Share on Common Stock
Price-Earnings Ratio
Dividend Yield on Common Stock
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Chapter
17
Accounting Systems For
Measuring Costs
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Cost Accounting Systems
Determining unit
manufacturing
costs.
Planning and
control
functions.
Cost accounting systems provide information
supporting decisions making the business successful.
Assessing the
efficiency and
effectiveness
of operations.
Providing
products or
services to
customers.
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Cost Accounting Systems
Evaluate and
reward
employee
performance.
Disclose
inventories
and cost of
goods sold.
Cost accounting systems are the procedures
and techniques used by management.
Manage activities
that consume
resources.
Track resources
consumed by
products and
services.
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Basic Cost Accounting Procedures
Process
Costing
Job Order
Costing
 Used for production of large,
unique, high-cost items.
 Built to order rather than mass
produced.
 Many costs can be directly traced
to each job.
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Basic Cost Accounting Procedures
Process
Costing
Job Order
Costing
 Typical job order cost applications:
 Special-order printing
 Building construction
 Also used in service industry
 Hospitals
 Law firms
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Basic Cost Accounting Procedures
Process
Costing
Job Order
Costing
 Used for production of small,
identical, low-cost items.
 Mass produced in automated
continuous production process.
 Costs cannot be directly traced to
each unit of product.
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Basic Cost Accounting Procedures
Process
Costing
Job Order
Costing
Typical process cost applications:
 Petrochemical refinery
 Paint manufacturer
 Paper mill
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Job Order Costing
Manufacturing
overhead (OH)
Applied to each
job using a
predetermined
rate (POHR)
Direct
materials
THE JOB
Direct
labor
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Job Order Costing
The primary document
for tracking the costs
associated with a
given job is the job
cost sheet.
Let’s investigate
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The Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143
Department B3
Item Wooden cargo crate
Date Initiated 3-4-X9
Date Completed
Units Completed
Direct Materials
Direct Labor
Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours
Rate
Amount
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Units Shipped
Date Number Balance
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The Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143
Department B3
Item Wooden cargo crate
Date Initiated 3-4-X9
Date Completed
Units Completed
Direct Materials
Direct Labor
Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours
Rate
Amount
X7-6890 $ 116
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
$
116
Units Shipped
Date Number Balance
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The Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143
Department B3
Item Wooden cargo crate
Date Initiated 3-4-X9
Date Completed
Accumulate
Units Completed
Direct Materials
Direct Labor
Req. No. Amount Ticket Hours Amount
X7-6890 $ 116
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$
88
Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
$
$
116
88
direct labor
costs by
Manufacturing Overhead
means
of a
Hours
Rate
Amount
work record,
such as a time
ticket,
Units
Shippedfor each
Date Number
Balance
employee.
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The Job Cost Sheet
RoseCo Job Cost Sheet
Apply manufacturing overhead
to jobs using a
Date Initiated 3-4-X9
predetermined overheadDate
rate
(POHR)3-5-X9
based on
Completed
Department B3 direct labor hours
Units Completed
(DLH). 2
Job Number A - 143
Item Wooden cargo crate
Direct Materials
Direct Labor
Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours
Rate
Amount
X7-6890 $ 116
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8
$
88
8
$
4 $
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Cost Summary
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
$
$
$
$
$
116
88
32
236
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Units Shipped
Date Number Balance
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Job Order Costing
Document Flow Summary
Let’s summarize
the document
flow we have
been discussing
in a job order
costing system.
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Job Order Costing
Document Flow Summary
The materials
requisition
indicates the
cost of direct
material
to charge to
jobs
and the cost of
indirect material
to charge to
overhead.
Direct
materials
JobCost
Cost
Job
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Materials
Materials
Ledger
Cards
Materials
Ledger
Cards
Materials
Ledger Cards
Requisition
Indirect
materials
Manufacturing
Overhead
Account
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Job Order Costing
Document Flow Summary
Direct
Employee time
Labor
tickets indicate
the cost of direct
Employee Time
labor
Employee
Time
Ticket
Employee
Time
to charge to Employee
Ticket
Time
Ticket
jobs
Ticket
and the cost
of indirect labor
to charge to
Indirect
Labor
overhead.
JobCost
Cost
Job
Job
Cost
Sheets
Job
Cost
Sheets
Sheets
Sheets
Manufacturing
Overhead
Account
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Job Order Costing
Document Flow Summary
Employee
Time Ticket
Other
Actual OH
Charges
Materials
Requisition
Indirect
Labor
Manufacturing
Overhead
Account
Overhead
Applied
with
POHR
Job Cost
Sheets
Indirect
Material
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Flowof
of Costs
Costs in
in Job
Flow
Job Costing
Costing
Let’s examine the
cost flows in a
job order costing
system. We will
use T-accounts
and start with
materials.
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Flow of Costs in Job Costing
Materials Inventory
•Material
•Direct
Purchases Material
•Indirect
Material
Work in Process
(Job Cost Sheet)
•Direct
Material
Mfg. Overhead
•Indirect
Material
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Flow of Costs in Job Costing
Next let’s add
labor costs and
applied
manufacturing
overhead to the
job order cost
flows. Are you
with me?
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Flow of Costs in Job Costing
Labor
•Direct
Labor
•Indirect
Labor
Mfg. Overhead
•Indirect •Overhead
Material Applied to
Work in
•Indirect
Process
Labor
Work in Process
(Job Cost Sheet)
•Direct
Material
•Direct
Labor
•Overhead
Applied
When
Actual
Applied
factory = factory
overhead
overhead
the difference is closed
to cost of goods sold.
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Closing Under- or Overapplied
Manufacturing Overhead
If Manufacturing
Overhead is . . .
Effect of Closing to
Cost of Goods Sold
UNDERAPPLIED
(Applied OH is less
than actual OH)
INCREASE
Cost of Goods Sold
OVERAPPLIED
(Applied OH is greater
than actual OH)
DECREASE
Cost of Goods Sold
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Flow of Costs in Job Costing
Now let’s
complete the
goods and sell
them. Still with
me?
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Flow of Costs in Job Costing
Work in Process
(Job Cost Sheet)
•Direct
•Cost of
Material
Goods
•Direct
Mfd.
Labor
•Overhead
Applied
Finished Goods
•Cost of
Goods
Mfd.
•Cost of
Goods
Sold
Cost of Goods Sold
•Cost of
Goods
Sold
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Process Costing
 Used for production of small,
identical, low-cost items.
 Mass produced in automated
continuous production process.
 Costs cannot be directly traced
to each unit of product.
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Comparing Job and Process Costing
Job Costing
Process Costing
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Custom orders
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Repetitive production
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Heterogeneous products
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Homogeneous products
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Low production volume
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High production volume
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High product flexibility
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Low product flexibility
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Low to medium
standardization
•
High standardization
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Job and Process Costing
The Work in Process
account consists of
individual jobs in
job costing.
Direct
Materials
Direct
Labor
Factory
Overhead
Jobs
Finished
Goods
Cost per
unit for
each job
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Job and Process Costing
Direct
Materials
Direct
Labor
Factory
Overhead
The Work in Process
account consists of
specific processes in
process costing.
Processes
Finished
Goods
Cost per
unit
processed
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Job and Process
Costing Similarities
Same objective: to determine
the cost of products
Same inventory accounts: raw materials,
work in process, and finished goods
Same overhead assignment method:
predetermined rate times actual activity
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Work in Process Accounts —
The Key to Process Costing
Indirect
Materials
Direct
Work in
Process
Assembly
Indirect
Factory
Applied
Overhead Overhead
Labor
Direct
Work in
Process
Packaging
Finished
Goods
Delivered
to
Customers
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Computing Unit Cost
Costs are accumulated for a period of time by
process or department.
Unit cost is computed by dividing the
accumulated costs by the number of
units produced in the period.
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Computing Unit Cost
Costs are accumulated for a period of time
by process or department.
Unit cost is computed by dividing the
accumulated costs by the number of
units produced in the period.
If partially complete units remain in
process, we must use equivalent units
as the divisor to obtain unit costs.
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Computing and Using Equivalent Units
of Production
Equivalent units is a concept expressing a number of
partially completed units as a smaller number of
fully completed units.
Two one-half full pitchers are
equivalent to one full pitcher.
+
=
1
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Question
For the current period, PencilCo started
15,000 units and completed 10,000 units,
leaving 5,000 units in process 30 percent
complete. How many equivalent units of
production did PencilCo have for the period?
a. 10,000
b. 11,500
c.
1,500
d. 15,000
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Question
For the current period, PencilCo started
15,000 units and completed 10,000 units,
leaving 5,000 units in process 30 percent
complete. How many equivalent units of
production did PencilCo have for the period?
a. 10,000
b. 11,500
c.
10,000 units + (5,000 units × .30)
= 11,500 equivalent units
1,500
d. 15,000
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Cost Per Equivalent Unit
Cost per
equivalent
unit
Product costs for the period
=
Equivalent units for the period
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Question
Now assume that PencilCo incurred
$27,600 in production costs. What was
PencilCo’s cost per unit for the period?
a.
b.
c.
d.
$1.84
$2.40
$2.76
$2.90
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Question
Now assume that PencilCo incurred
$27,600 in production costs. What was
PencilCo’s cost per unit for the period?
a.
b.
c.
d.
$1.84
$2.40
$2.76
$2.90
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
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Equivalent Units
40% of
Material
Stage 1
25% of
Labor and
Overhead
Equivalent units may be
different for material and labor
and overhead at different
stages of a process.
At completion of Stage 1 of the process, material
is 40% complete, but labor and overhead are only
25% complete.
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Equivalent Units
40% of
Material
+
60% of
Material
Stage 1
Stage 2
25% of
Labor and
Overhead
25% of
Labor and
Overhead
+
=
100%
=
50%
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Equivalent Units
40% of
Material
60% of
Material
Stage 1
Stage 2
Stage 3
25% of
Labor and
Overhead
25% of
Labor and
Overhead
50% of
Labor and
Overhead
The process is now complete.
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End of Todays Session
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