Chapter 2 Cost Concep Chapter 2 Cost Concepts and Cost Allocation Fall 2007 Crosson.
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Transcript of Chapter 2 Cost Concep Chapter 2 Cost Concepts and Cost Allocation Fall 2007 Crosson.
Chapter 2Chapter 2Cost ConcepCost Concepts and
Cost Allocation
Fall 2007
Crosson
Learning Objectives:
How much does it cost?Types of Businesses Financial Reporting of Costs Cost ClassificationsProduct CostsManufacturing Inventory Accounts and
Cost FlowsOverhead Cost Allocation: Traditional
and ABC Approaches
Use only with permission of Susan Crosson
Key Question:How much does it cost?
What should be included?Unit cost of a product or service:
_Total costs__
Units produced
What Do You Know?Exercise 12Exercise 12
Cost per bale?Cost per bale?
Revenue per bale?Revenue per bale?
Profit per bale?Profit per bale?
Price increase?Price increase?
What Do You Know?Exercise 12Exercise 12
Cost per bale?Cost per bale?
$150+$115+$600+($1,500/12)=$150+$115+$600+($1,500/12)=
$990/3,000= $990/3,000= $ .33/bale$ .33/bale
Revenue per bale?Revenue per bale?
$2,400/3,000= $2,400/3,000= $ .80/bale$ .80/bale
Profit? $ .80 - $ .33= Profit? $ .80 - $ .33= $ .47/bale$ .47/bale
Price increase? Price increase? It dependsIt depends
Use only with permission of Susan Crosson
Types of Businesses
ServiceMerchandising or
RetailManufacturing
Value Chain and Supply Chain
Use only with permission of Susan Crosson
Financial Reporting of CostsFigure 3
Service Income Statement
Sales
-Cost of Sales (Supplies+DL+OH)
Gross Margin
-SAG
Net Income
No Inventory Accounts DM known as Supplies since immaterial SAG=Selling, Administrative, and General Expenses
Use only with permission of Susan Crosson
Financial Reporting of Costs Figure 3
Retail and Manufacturing Income statement
Sales-Cost of Goods Sold (COGS)Gross Margin-SAGNet Income
Retail Manufacturing Exhibit 1 in text
Good follow up exercise is E7 and SE2.
What Do You Know?
Exercise 6Exercise 61.1.
2.2.
3.3.
4.4.
5.5.
6.6.
7.7.
8.8.
9.9.
What Do You Know?
Exercise 6Exercise 61. MER1. MER
2. SER2. SER
3. MANF3. MANF
4. MER4. MER
5. MANF5. MANF
6. SER6. SER
7. SER7. SER
8. MANF8. MANF
9. MER9. MER
Use only with permission of Susan Crosson
Cost Classifications:
Cost traceability: direct and indirectCost behavior: fixed or variableMarketing value: value or nonvalue adding
Financial reporting: product or period
Use only with permission of Susan Crosson
Cost Classifications:
V a lu e A d d ingN on -V a lu e A d d ing
M arketing Value
Period CostsE xp en ses
S A GN on in ve n to r iab le
P r im e C o s ts
D irec t M ate ria ls
C o n ve rsio n C o s tsP r im e C o s ts
D ire c t L ab or
C o n ve rsio n C o s ts
O ve rhe adIn d ire c t C o s ts
Product CostsIn ven to riab le
Financial Reporting
V ariab leF ixed
Cost Behavior
Good follow up exercise is E2 and SE5.
Use only with permission of Susan Crosson
Product Costs and Inventory AccountsFigure 5
Materials Inventory Materials Purchased Materials Used in Production
Work in Process Inventory Current Manufacturing Costs:
DM, DL, OH used Cost of Goods Manufactured
Finished Goods Inventory Cost of Goods
Manufactured/Completed Cost of Goods Available for Sale Cost of Goods Sold
Look and listen to SE3.
The Materials AccountMaterial InventoryMaterial Inventory
Beginning Balance
+DM Purchased
+IDM Purchased
DM used (to WIP)
IDM used (to OH)
Ending Balance
The Finished Goods AccountFinished Goods InventoryFinished Goods Inventory
Beginning Balance(BB)
+Cost of Goods Manufactured
(COGM from WIP)
Cost of Goods Sold
(to COGS)
Ending Balance
BB+COGM=COGAS
The Work in Process AccountWIP InventoryWIP Inventory
Beginning Balance
+DM used
+DL used
+OH used
Cost of Goods Manufactured or Completed
(COGM to FG)
Ending Balance
Current ManufacturingCosts
Info. for the I/S’s COGM comes from this account!
What Do You Know?Exercise 5 Oak DivisionExercise 5 Oak Division
Sales
-COGS
GM
-SAG
NI
?
C=$8
?
?
?
+Matl used
+DL
+OH
=Current Mfg Costs
+Beg. WIP
-End. WIP
=COGM
+Beg. FG
=COGAS
-End. FG
COGS
+$3
+A
+$1
=$6
$2
-B
=$7
+$3
=$?
-$2
C
+$3
+A=$2
+$1
=$6
$2
-B=$1
=$7
+$3
=$?=$10
-$2
C=$8
What Do You Know?Exercise 5 Loblolly DivisionExercise 5 Loblolly Division
Sales
-COGS
GM
-SAG
NI
?
18
?
?
?
+Matl used
+DL
+OH
=Current Mfg Costs
+Beg. WIP
-End. WIP
=COGM
+Beg. FG
=COGAS
-End. FG
COGS
+$7
+$6
+$3
=d
+$e
-$3
=$20
+f
=$?
-$6
18
+$7
+$6
+$3
=$d=
+$e=
-$3
=$20
+$f=
=$?
-$6
18
What Do You Know?
Problem 2Problem 21.1. a.a.
b.b.
2. Gross margin2. Gross margin
Cost of goods soldCost of goods sold
Cost of goods available for saleCost of goods available for sale
Cost of goods manufacturedCost of goods manufactured
What Do You Know?Problem 2Problem 2
1.1. a. Materials, Work in Process, Finished a. Materials, Work in Process, Finished Goods, Production supplies, Small tools, Goods, Production supplies, Small tools, Patents, Factory building, Factory Patents, Factory building, Factory equipmentequipment
b. All the other accountsb. All the other accounts
2. Gross margin $191,8002. Gross margin $191,800
Cost of goods sold $308, 200Cost of goods sold $308, 200
Cost of goods available for sale $363,000Cost of goods available for sale $363,000
Cost of goods manufactured $312,000Cost of goods manufactured $312,000
P2 Computations:Sales $ 500,000.
COGS $ 308,200b
Gross Margin $ 191,800a
Operating Expenses $ 53,670.
Net Income $ 138,130.
COGS:
COGM $ 312,100d
Beg. FG $ 50,900 .
COGAS $ 363,000c
End. FG $ 54,800.
COGS $ 308,200b
Use only with permission of Susan Crosson
Manufacturing Inventory Accounts and Cost Flows
Figure 4 Activities and Documents
Good follow up exercise is SE4.
Cost Flow Assumptions Actual Costing:
Actual DM,DL, OH *Normal Costing:
Actual DM, DL Applied OH
Standard Costing: Predetermined or standard DM, DL,
OH (like applied OH)
* What we will assume….
Use only with permission of Susan Crosson
How much does it cost?Unit cost of a product or service under
Normal Costing:
Costs of Goods Manufactured*
Units produced
*Actual DM, Actual DL, Applied OH
Good follow up exercise is SE6.
Use only with permission of Susan Crosson
Actual and Applied OverheadFigure 7
PLAN:At beginning of period, find overhead rate using either traditional or ABC
APPLY: During the period apply overhead to WIP as products are processed
ACTUAL: During the period record actual overhead in the Overhead account
RECONCILE: At end of period reconcile Actual and Applied Overhead by closing the balance in the Overhead account to COGS (if immaterial)
Good follow up exercises are SE7, SE9, E14, or E15. Look and listen to SE 8.
The Overhead AccountOverheadOverhead
Actual OH:
IDM
IDL
Other OH costs
Applied OH:
OH rate
times actual cost driver activity
Underapplied
COGS increases
Overapplied
COGS decreases
Dr. COGS xxCr. OH xx
Dr. OH xxCr. COGS xx
What Do You Know?Exercise 15Exercise 15
OverheadOverheadActual:
????
Applied:
$12.72 x _????_
????
Underapplied
????
Overapplied
COGS will be _______________
What Do You Know?Exercise 15Exercise 15
OverheadOverheadActual:
$1,143,400
Applied:
($12.72 x 89,920=)
$1,143,782.40
Underapplied
$382.40
Overapplied
COGS will be decreased
Use only with permission of Susan Crosson
Overhead Cost Allocation: Traditional and ABC Approaches to Applying Overhead
Traditional One overhead account One plantwide rate All Budgeted Overhead
divided by Estimated Cost Driver i.e. DL$,DLH
Predetermined Rate:
Estimated Overhead
Estimated Cost Driver
ABC Overhead divided into
Activities Many activity rates Budgeted Activity Cost
Pool divided by Estimated Cost Driver
Predetermined Rate:
Estimated Cost PoolEstimated Cost Driver
Good follow up exercises SE10 or E16.
Use only with permission of Susan Crosson
How much does it cost?Unit cost of a product or service under
Normal Costing using Traditional OH:
Costs of Goods Manufactured* Units produced
*Actual DM, Actual DL, and Applied Plantwide Predetermined OH
What Do You Know?
Problem 8 Traditional OH Rate: Problem 8 Traditional OH Rate: $13.75$13.75/DLH/DLH how computed? how computed?
What is the OH rate for Rigger II What is the OH rate for Rigger II and for BioScout?and for BioScout?
What is the product unit cost of What is the product unit cost of Rigger II and BioScout?Rigger II and BioScout?
What Do You Know?Problem 8 Traditional OH Rate: Problem 8 Traditional OH Rate: $13.75DLH how computed?$13.75DLH how computed?
$220,000/(12,000 + 4,000) = $13.75$220,000/(12,000 + 4,000) = $13.75What is the OH rate: What is the OH rate: Rigger II? Rigger II? $13.75 x 30DLH = $412.50 $13.75 x 30DLH = $412.50 BioScout? BioScout? $13.75 x 40DLH = $550.00$13.75 x 40DLH = $550.00
What is the product unit cost:What is the product unit cost:DM+DL+OH=DM+DL+OH=
Rigger II?Rigger II?
$$10,000.00+$1,450.00+$412.5010,000.00+$1,450.00+$412.50=$11,862.50=$11,862.50
BioScout? BioScout? $12,000+$1,600+$550$12,000+$1,600+$550=$14,150=$14,150
Use only with permission of Susan Crosson
How much does it cost?Unit cost of a product or service under
Normal Costing using ABC OH:
Costs of Goods Manufactured*
Units produced
*Actual DM, Actual DL, and
Applied Predetermined
Activity Cost Pool Rates
What Do You Know?
Problem 8 ABC OH Rate: Problem 8 ABC OH Rate: Calculate the activity cost rate for Calculate the activity cost rate for each cost pool.each cost pool.
Compute the total overhead costs Compute the total overhead costs applied using ABC to Rigger II and applied using ABC to Rigger II and BioScout.BioScout.
What is the product unit cost of a What is the product unit cost of a Rigger II and a BioScout?Rigger II and a BioScout?
What Do You Know?
Problem 8 ABC OH Rate: Problem 8 ABC OH Rate: Calculate the activity cost rate:Calculate the activity cost rate:
Setup: $70,000/700= $100Setup: $70,000/700= $100/setup/setup
Inspection: $20,000/500= $40Inspection: $20,000/500= $40/inspection/inspection
Engineering: $50,000/2,000=$25Engineering: $50,000/2,000=$25/Hour/Hour
Assembly: $80,000/10,000=$8Assembly: $80,000/10,000=$8/MH/MH
Problem 8 ABC OH Rate Compute the overhead costs applied: Problem 8 ABC OH Rate Compute the overhead costs applied:
Rigger II:Rigger II:Setup: $100Setup: $100/setup x 250= $25,000/setup x 250= $25,000
Inspection: $40Inspection: $40/inspection x 150= $6,000/inspection x 150= $6,000
Engineering:$25Engineering:$25/Hour x 600= $15,000/Hour x 600= $15,000
Assembly:$8Assembly:$8/MH x 5,000= $40,000/MH x 5,000= $40,000
Total: $86,000/400 units = $215Total: $86,000/400 units = $215BioScout:BioScout:
Setup: $100Setup: $100/setup 450= $45,000/setup 450= $45,000
Inspection: $40Inspection: $40/inspection x 350= $14,000/inspection x 350= $14,000
Engineering:$25Engineering:$25/Hour x 1,400= $35,000/Hour x 1,400= $35,000
Assembly:$8Assembly:$8/MH x 5,000= $40,000/MH x 5,000= $40,000
Total: $134,000/100 = $1,340Total: $134,000/100 = $1,340
What Do You Know?
Problem 8 ABC OH Rate: Problem 8 ABC OH Rate: What is the product unit cost:What is the product unit cost:
Rigger II?Rigger II?
$$10,000+$1,450+$215 10,000+$1,450+$215 =$11,665=$11,665
BioScout? BioScout?
$12,000+$1,600+ $1,340 $12,000+$1,600+ $1,340 =$14,940=$14,940
What Do You Know?Problem 8 Traditional v. ABC: Problem 8 Traditional v. ABC:
Rigger II?Rigger II?
Traditional: Traditional: $$10,000.00+$1,450.00+$412.5010,000.00+$1,450.00+$412.50=$11,862.50=$11,862.50
ABC: $ABC: $10,000+$1,450+$21510,000+$1,450+$215=$11,665=$11,665
BioScout? BioScout?
Traditional: $12,000+$1,600+$550Traditional: $12,000+$1,600+$550=$14,150=$14,150
ABC: $12,000+$1,600+ $1,340 ABC: $12,000+$1,600+ $1,340 =$14,940=$14,940
How much does it really cost?How much does it really cost?
Now Try Case 5C5 Traditional OH Rate: C5 Traditional OH Rate: $25/DLH how computed?$25/DLH how computed?
$320,000/(80% of (12,000 + 4,000) = $320,000/(80% of (12,000 + 4,000) = $320,000/12,800)= $25$320,000/12,800)= $25
What is the OH rate: What is the OH rate: Rigger II?Rigger II?$25x$25x(80%of 30/DLH)(80%of 30/DLH)=$25x24=$600 =$25x24=$600 BioScout?BioScout?$25x$25x(80%of40/DLH)(80%of40/DLH)=$25x32=$800=$25x32=$800
What is the product unit cost:What is the product unit cost:DM+DL+OH=DM+DL+OH=
Rigger II?Rigger II?$$10,000+$1,160+$60010,000+$1,160+$600=$11,760=$11,760 BioScout? BioScout? $12,000+$1,280+$800$12,000+$1,280+$800=$14,080=$14,080
C5 Notes
C5 ABC OH Rate: C5 ABC OH Rate: Calculate the activity cost rate:Calculate the activity cost rate:
Setup: $70,000/700= $100Setup: $70,000/700= $100/setup/setup
Inspection: $20,000/500= $40Inspection: $20,000/500= $40/inspection/inspection
Engineering: $50,000/2,000=$25Engineering: $50,000/2,000=$25/Hour/Hour
Assembly: $180,000/10,000=$18Assembly: $180,000/10,000=$18/MH/MH
C5 ABC OH Rate Compute the overhead costs applied: C5 ABC OH Rate Compute the overhead costs applied:
Rigger II:Rigger II:Setup: $100Setup: $100/setup x 250= $25,000/setup x 250= $25,000
Inspection: $40Inspection: $40/inspection x 150= $6,000/inspection x 150= $6,000
Engineering:$25Engineering:$25/Hour x 600= $15,000/Hour x 600= $15,000
Assembly:$18Assembly:$18/MH x 2,000= $36,000/MH x 2,000= $36,000
Total: $82,000/400 units = $205Total: $82,000/400 units = $205BioScout:BioScout:
Setup: $100Setup: $100/setup x 450= $45,000/setup x 450= $45,000
Inspection: $40Inspection: $40/inspection x 350= $14,000/inspection x 350= $14,000
Engineering:$25Engineering:$25/Hour x 1,400= $35,000/Hour x 1,400= $35,000
Assembly:$18Assembly:$18/MH x 8,000= $144,000/MH x 8,000= $144,000
Total: $238,000/100 = $2,380Total: $238,000/100 = $2,380
C5 NotesC5 Traditional v. ABC: C5 Traditional v. ABC:
Rigger II?Rigger II?
Traditional: Traditional: $$10,000+$1,160+$60010,000+$1,160+$600=$11,760=$11,760
ABC: $ABC: $10,000+$1,160+$20510,000+$1,160+$205=$11,365=$11,365
BioScout? BioScout?
Traditional: Traditional: $12,000+$1,280+$800$12,000+$1,280+$800=$14,080=$14,080
ABC: $12,000+$1,280+ $2,380 ABC: $12,000+$1,280+ $2,380 =$15,660=$15,660
How much does it really cost?How much does it really cost?
Use only with permission of Susan Crosson
Homework:
Problem 5