Managerial Accounting: An Introduction To Concepts, Methods, And Uses
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Transcript of Managerial Accounting: An Introduction To Concepts, Methods, And Uses
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Managerial Accounting:
An Introduction To Concepts, Methods, And Uses
Chapter 2
Measuring Product Costs
Maher, Stickney and Weil
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Learning Objectives (Slide 1 of 3)
Understand the nature of manufacturing costs.
Explain the need for recording costs by department and assigning costs to products.
Understand how the Work-in-Process account both describes the transformation of inputs into outputs in a company and accounts for the costs incurred in the process.
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Learning Objectives (Slide 2 of 3)
Compare and contrast normal costing and actual costing.
Know various production methods and the different accounting systems each requires.
Compare and contrast job costing and process costing systems.
Compare and contrast product costing in service organizations to that in manufacturing companies.
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Learning Objectives (Slide 3 of 3)
Understand the concepts of customer costing and profitability analysis.
Identify ethical issues in job costing. Recognize components of just-in-time
(JIT) production methods and understand how accountants adapt costing systems to them.
Know how to compute end-of-period inventory book value using equivalent units of production (Appendix 2.1).
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What are the three manufacturing costs?
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Relation Between Departmental Costing & Product Costing (Slide 1 of
3)
Manufacturing costs are first assigned to departments or responsibility centers
A responsibility center is any organizational unit with its own manager
e.g., divisions, territories, plants
Aids in planning and performance evaluation
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Relation Between Departmental Costing & Product Costing (Slide 2
of 3)
Direct MaterialsDirect LaborManufacturing Overhead
Product A
Product B
Assembly Dept.
Finishing Dept.
Record Costs for Performance
Evaluation
Assign CostsTo Products
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Relation Between Departmental Costing & Product Costing (Slide 3 of
3)
Actual manufacturing costs recorded in departments can be compared to standard or budgeted amounts
Differences, called variances, can be investigated further
Costs are then assigned to products
Useful in managerial decision-making such as evaluating product profitability
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Finished Goods
Inventory
Draw the Flow of Costs through T-Accounts
WIP-Dept.1WIP-
Dept.2
Cost of Goods Sold
Balance Sheet Accounts Income Statement Accounts
Mktg. &Admin.
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What is the basic cost flow equation?
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Cost Measures (Slide 1 of 2)
Define Normal Costing
Normal Costing--commonly used to assign costs to products
Assigns actual direct materials and direct labor plus “normal” manufacturing overhead
Overhead is applied to units produced using an application rate estimated before the accounting period begins
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Cost Measures (Slide 2 of 2)
Define Actual Costing
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Applying Overhead Costs
Normal costing works as follows:
1. Select a cost driver
2. Estimate overhead and the level of activity for the accounting period
3. Compute the predetermined manufacturing overhead rate
4. Apply overhead to production by multiplying the predetermined overhead rate times the actual activity
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Overhead Rate Computation
Predetermined manufacturing overhead rate is calculated as follows:
What is the equation?
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Example-Overhead Rate Computation
Pizza Shack estimates that next year variable overhead will be $108,000 and direct labor will be 12,000 hours The predetermined overhead rate for next
year will be:
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Discuss Cost Systems
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Production Methods and Accounting
SystemsType Production Accounting System Type ProductJob Job Costing Customized
(e.g., Custom Homes)
Operations Operation Costing Mostly Standardized
(e.g., Cars)
Continuous Flow Process Costing Standardized Processing
(e.g., Oil Refinery)
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Comment on Job Costing
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Comment on Process Costing
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Comment on Operation Costing
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Service Organizations Flow of costs is similar to that of a
manufacturing company Providing a service requires labor,
overhead, & sometimes materials (called supplies)
Costs are collected by the job or client
Provides info for cost control, performance evaluation, and future pricing decisions
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Review Ethical Issues in Job Costing
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Just-In-Time (JIT) Methods Attempt to obtain materials or provide
finished goods just in time
Reduces or eliminates inventories and related carrying costs
May allow production costs to be recorded directly to Cost of Goods Sold (COGS)
May involve use of “Backflush Costing”
Used to transfer costs back to inventories when production costs are initially recorded as COGS
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Spoilage & Quality of Production
Normal waste is typically included in the cost of work performed
If waste is not “normal” it may be included in an expense account called “Abnormal Spoilage”
Companies concerned about quality production may not treat any waste or spoilage as normal Prevents these costs from being buried in
production costs
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Computing Costs of Equivalent Production
What are the Five steps required to compute costs of products, ending inventory, and finished goods?
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If you have any comments or suggestions concerning this PowerPoint Presentation for Managerial Accounting, An Introduction To Concepts, Methods, And Uses, please contact:
Dr. Michael Blue, CFE, CPA, CMA [email protected]
Bloomsburg University of Pennsylvania