Post on 07-Apr-2018
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Chapter 1 - 1
AGUS SISWANDI
01153056
MANAGEMENT
ACCOUNTING
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Chapter 1 - 2
Chapter Two
Basic ManagementAccounting Concepts
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Chapter 1 - 3
Learning Objectives
Explain the cost assignment process.
Define tangible and intangible productsand explain why there are different
product cost definitions.
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Chapter 1 - 4
Learning Objectives (continued)
Prepare income statements for
manufacturing and service organizations. Explain the differences between
functional-based and activity-based
management accounting systems.
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Chapter 1 - 5
Basic Cost Concepts
Costis the cash or cash-equivalent value sacrificed for
goods and services that are expected to bring a current or
future benefit to the organization.
Opportunity costis the benefit given up or sacrificed whenone alternative is chosen over another.
Example: Wages or salary foregone by attending college instead
of working.
An expense is an expired cost or a cost used up in theproduction of revenues.
Example: Cost of materials in a product that was sold.
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Basic Cost Concepts (continued)
A cost objectis any item such as products, customers,
departments, projects, activities, and so on, for which costs
are measured and assigned.
Example: A bicycle is a cost object when you are determining
the cost to produce a bicycle.
An activity is a basic unit of work performed within an
organization.Example: Setting up equipment, moving materials, maintaining
equipment, designing products, etc.
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Basic Cost Concepts (continued)
Traceability is the ability to assign a cost to a cost objectin an economically feasible way by means of a cause-and-effect relationship.
Direct costs are those costs that can be easily and
accurately traced to a cost object.
Example: The salary of a supervisor of a department, where thedepartment is defined as the cost object.
Indirect costs are those costs that cannot be easily and
accurately traced to a cost object.Example: The salary of a plant manager, where departments
within the plant are defined as the cost objects.
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Methods Of Tracing
Tracing is the actual assignment of costs to a cost object using an
observable measure of the resources consumed by the cost object.
Tracing costs to cost objects can occur in the following two ways:
Direct tracing is the process of identifying and assigning costs that are
exclusively and physically associated with a cost object to that cost object.
Driver tracing is the use of drivers to assign costs to cost objects. Drivers
are observable causal factors that measure a cost objects resource
consumption.
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Cost Assignment Methods
Cost of Resources
Direct
Tracing
Driver
Tracing Allocation
Physical
Observation
Causal
Relationship
Assumed
Relationship
Cost Objects
i i i i h i l
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Chapter 1 - 10
Some Activities with Potential
Activity Drivers
Activity Potential Activity Driver
Setting-up equipment Number of setups
Ordering materials Number of purchase ordersDrilling holes Number of machine hours
Redesigning products Number of engineering hours
Paying bills Number of invoices
Inspecting finished goods Number of batches produced
I f f S i i h
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Interface of Services with
Management Accounting
1. Intangibility
2. Perishability
3. Inseparability
4. Heterogeneity
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Intangibility
Derived PropertiesImpact on
Management Accounting
*Many of these effects are also true of tangible products.
Services cannot be stored. No Inventories.
No patent protection. Strong ethical code.*
Cannot display or
communicate services.
Price difficult to set. Demand for more accurate
cost assignment.*
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Perishability
Derived PropertiesImpact on
Management Accounting
*Many of these effects are also true of tangible products.
Service benefits expire quickly. No inventories.
Services may be repeated often Need for standards and
for one customer. consistent high quality.*
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Inseparability
Derived PropertiesImpact on
Management Accounting
*Many of these effects are also true of tangible products.
Customer directly involved Costs often accounted for by
with production of service. customer type.*
Centralized mass production Demand for measurement and
of services difficult. control of quality to maintainconsistency.*
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Heterogeneity
Derived PropertiesImpact on
Management Accounting
*Many of these effects are also true of tangible products.
Wide variation in service Productivity and quality
product possible. measurement and control
must be ongoing.*
Total quality managementcritical*
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Product Costing Definitions
Research andDevelopment
Production
Marketing
Production
Marketing
Production
Pricing Decisions
Product-Mix Decisions
Strategic Profitability
Analysis
Strategic Design
Decisions
Tactical Profitability
Analysis
External Financial
Reporting
Value-Chain Operating Traditional
Product Costs Product Costs Product Costs
Customer Service Customer Service
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Chapter 1 - 17
Production Costs
Direct materials are those materials that are directly
traceable to the goods or services being produced.
Example: The cost of tires on an automobile.
Direct laboris the labor that is directly traceable to the
goods or services being produced.
Example: Wages of assembly-line workers.
Overheadare all other production costs.
Example: Plant depreciation, utilities, property taxes, indirect
materials, indirect labor, etc.
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Production Costs (continued)
Prime Cost =
Direct Materials Costs + Direct Labor Costs
Conversion Cost =
Direct Labor Costs + Overhead Costs
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Nonproduction Costs
Marketing (selling) costs are the costs necessary to market,
distribute, and service a product or service.
Example: Commissions, storage costs, and freight
Administrative costs are the costs associated with research,
development, and general administration of the organization that
cannot reasonably be assigned to either marketing or production.
Example: Legal fees, salary of the chief executive officer.
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Chapter 1 - 20
Statement of COGM
Direct Materials Used:
Beginning inventory $200,000
Add: Purchases 450,000
Materials available $650,000
Less: Ending inventory 50,000 $ 600,000
Direct Labor 350,000
Manufacturing overhead:
Indirect labor $122,500
Depreciation 177,500
Rent 50,000
Utilities 37,500
Property taxes 12,500
Maintenance 50,000 450,000
Total manufacturing costs added $1,400,000Add: Beginning work in process 200,000
Total manufacturing costs $1,600,000
Less: Ending work in process 400,000
Cost of goods manufactured $1,200,000========
I St t t f
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Income Statement for a
Manufacturing Organization
Sales $2,800,000
Less cost of goods sold:
Beginning finished goods inventory $ 500,000
Add: Cost of goods manufactured 1,200,000Cost of goods available for sale $1,700,000
Less: Ending finished goods inventory 300,000 1,400,000
Gross margin $1,400,000
Less operating expenses:
Selling expenses $ 600,000Administrative expenses 300,000 900,000
Income before taxes $ 500,000========
I St t t f
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Income Statement for a
Service OrganizationSales $300,000
Less expenses:
Cost of services sold:
Beginning work in process $ 5,000
Service costs added:
Direct materials $ 40,000
Direct labor 80,000Overhead 100,000 220,000
Total $225,000
Less: Ending work in process 10,000 215,000
Gross margin $ 85,000
Less operating expenses:
Selling expenses $ 8,000
Administrative expenses 22,000 30,000
Income before taxes $ 55,000=======
C i f FBM d ABM
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Comparison of FBM and ABM
Accounting Systems
Functional-Based Activity-Based
1. Unit-based drivers 1. Unit- and nonunit-based drivers
2. Allocation-intensive 2. Tracing-intensive
3. Narrow and rigid product costing 3. Broad, flexible product costing4. Focus on managing cost 4. Focus on managing activities
5. Sparse activity information 5. Detailed activity information
6. Maximization of individual unit 6. Systemwide performance
performance maximization
7. Use of financial measures of 7. Use of both financial and
performance nonfinancial measures of
performance
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Functional-Based Management Model
Cost View
Operational View
Efficiency Analysis Functions Performance Analysis
Resources
Products
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Activity-Based Management Model
Cost View
Process View
Driver Analysis Activities Performance Analysis
Resources
Products and
Customers
Why? What? How Well?
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End of Chapter 2