Introduction to Managerial Accounting Chapter M1.
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Transcript of Introduction to Managerial Accounting Chapter M1.
Introduction to Managerial Accounting
Chapter M1
Financial Vs Managerial Financial – public use of information
– Accuracy and consistency are important Managerial – internal use
– Estimates are used
Managerial Characteristics
Provides estimates of future operations
Used by mgmt in conducting daily operations, planning, and developing strategies
Organizational Chart
V P o f P rod u ction
D irec to r o f A d v er tis ing D irec to r o f M arke ting
V P o f S a les V P o f D is tr ib u tion
P ay ro ll A cc ts R ec A ccts P a ya b le
C on tro lle r
C o s t B ud ge ting
D ire c to r o f B u dg e ting D irec to r o f T a xa tion
C h ie f F in a nc ia l O ff ice r
C E OC h ie f E xe xcu tive O ffice r
Managerial Terms Cost
– A payment of cash or its equivalent or the commitment to pay cash in the future
Manufacturing– Converts materials
into finished product
Materials Direct –
– cost of materials that are an integral part of the product
Indirect –– Cost of materials
that are not a significant portion of the total product cost
Labor Direct
– Cost of wages of employees who are directly involved in the converting materials into the manufactured product
Indirect– Labor that do not enter
directly into the manufacture of a product
Factory Overhead Costs other than
direct materials cost and direct labor costs– Manufacturing
overhead– Factory burden– Depreciation– utilities
Costs Product costs
– Direct materials, direct labor, and factory overhead
– Associated with the production of the product
Conversion costs– Costs of converting
materials into finished products
– Direct Labor plus factory overhead
Cost Accounting Systems Job order cost
– Provides separate record of the cost of each quantity of the product that passes through the factory
Process cost system– Costs are
accumulated for each of the department or processes within the factory
Inventory Accounts Materials inventory Work in process inventory Finished goods inventory
Purchase of Materials Materials Inventory DR
– Accts payable CR
Example 1: Purchased $8,000 of materials on account
Materials inventory 8,000 Accts payable 8,000
Requisition of Materials Work in process DR (DM) Factory overhead DR (indirect) Materials inventory CR total
Example 2 Material usage
Job # Materials
125 $4,500
126 $4,250
127 $4,000
128 $3,500
129 $3,000
Indirect $2,000
TOTAL $21,250
Example 2 Record the usage of materials WIP $19,250 FO 2,000 Material inventory $21,250
Factory Labor Work in process DR (direct labor) Factory overhead DR (indirect labor) Wages payable CR
Example 3Job # Labor Direct labor
hours
125 $5,000 200
126 $4,900 175
127 $4,500 150
128 $4,000 125
129 $3,500 100
Indirect $1,500
TOTAL $23,400 830
Example 3 Record labor usage Work in process $21,900 Factory overhead 1,500
– Wages payable $23,400
Factory Overhead Costs Factory overhead DR Utilities payable CR record the factory overhead costs
incurred.
Allocating Factory Overhead
Cost allocation – the process of assigning factory overhead costs to a cost object
Activity Base – measure used to allocate factory overhead
Predetermined factory overhead rate =
Estimated total FO Estimated Activity
Base
Examples Example 4: The
corporation estimates FO at $500,000 for the next period. The corporation uses direct labor hours as its activity base and estimates 50,000 total direct labor hours
Rate = $500,000/50,000
Rate = $10 per hour
Examples FO costs at
$500,000 for the next period. Factory overhead is determined as a % of direct labor costs. If direct labor costs is $750,000
Rate– 500,000/750,000
Rate is 2/3 or 67% Rate is 67% of
direct labor costs
Applying Factory Overhead
Work in process DR Factory overhead CR
Applied based on the predetermined overhead rate
Example 6: Apply factory overhead at a rate of $50 per direct labor hour.
Example 6Job # Mtrls Labor DL hr FO
125 4500 5000 230
126 4250 4900 175
127 4000 4500 150
128 3500 4000 125
129 3000 3500 100
Indirect 2000 1500
Totals 21250
23400 780
Example 6
Job # DLhr FO
125 230 $50 X 230 = 11500
126 175 175 x 50 = 8750
127 150 150 x 50 = 7500
128 125 125 x 50 = 6250
129 100 100 x 50 = 5000
Indirect
Totals 780 39000
Example 6 Work in process 39,000 Factory overhead 39,000
Example 7 Apply factory overhead at the rate of
75% of direct labor costs.
Example 7Job
#Labor Factory
125 $5000 $5000 x 75% = 3750
126 $4900 $4900 X 75% = 3675
127 $4500 $4500 X 75% = 3375
128 $4000 $4000 X 75% = 3000
129 $1500 $1500 X 75% = 1125
TOTAL 14925
Example 7 Work in process $14,925 Factory overhead $14,925
Factory Overhead
Debit Credit
Disposal of Factory Overhead
Cost of goods sold DR Factory overhead CR Example 8: The balance is FO is
$50,000 and $60,000 is applied to WIP
Balance 50000 60000 applied
10,000 over applied
Factory overhead
Disposal Factory overhead 10,000 Cost of good sold 10,000
Transfer of Finished Goods
Finished goods DR Work in process CR Total cost of production DM + DL + FO
Example 9: jobs 125, 126, & 127 are completed
Job Mtrl Labor FO Total
125 $4500 $5000 $6900 $16400
126 $4250 $4900 $5250 $14400
127 $000 $4500 $4500 $13000
Total $43,800
Transfer to Finished Goods
Finished goods $43,800 Work in process $43,800
Transferred to COGS Example 10: Job 125 sold for $75,000 Accts rec $75,000 Sales $75,000 We record the transfer at the COST
not the sales price. Cost of goods sold $16,400 Finished goods $16,400
Classroom Example
Complete the Cycle
Record the materials WIP $33070 FO 9100 Materials inventory 42170 Record the labor WIP 20900 FO 11500 Wages payable 32400
Factory overhead applied 120% of direct labor costs
Job DL FO
531 6000 7200
532 5900 7080
533 3500 4200
534 3000 3600
535 2500 3000
TOTAL 25080
Factory overhead WIP 25080 FO 25080 Completed jobs
Job Mtrl Labor FO Total
533 8709 3500 4200 16409
534 3500 3000 3600 10100
Total 26509
Continuation Finished goods 26509 WIP 26509 Sale of job 533 Accts rec 100000 Sales 100000 Cost of goods sold 10100 Finished goods 10100
Period Costs Are expenses that
are use din generating revenue during the current period and not involved in the manufacturing process
Selling expenses Administrative
expenses
Homework Exercises 1-11,-12,1-13,1-14