Upload
rachel-chang
View
11
Download
0
Embed Size (px)
DESCRIPTION
Costing
Citation preview
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 1
An Introduction to CostTerms and Purposes
An Introduction to CostTerms and Purposes
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 2
Cost and Cost TerminologyCost and Cost Terminology
Cost is a resource sacrificed or forgone to achievea specific objective.
An actual cost is the cost incurred (a historical cost)as distinguished from budgeted costs.
A cost object is anything for which a separatemeasurement of costs is desired.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 3
Cost and Cost TerminologyCost and Cost Terminology
CostAccumulation
Cost Object
Cost Object
Cost Object
CostAssignment
Tracing
Allocating
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 4
Direct and Indirect CostsDirect and Indirect Costs
Direct CostsExample: Paper on whichSports Illustrated magazineis printed
Indirect CostsExample: Lease cost forTime-Warner buildinghousing the senior editorsof its magazine
COST OBJECT
Example: Sports Illustrated magazine
COST OBJECT
Example: Sports Illustrated magazine
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 5
Direct and Indirect CostsExample
Direct and Indirect CostsExample
Direct Costs:Maintenance Department $40,000Personnel Department $20,600Assembly Department $75,000Finishing Department $55,000
Assume that Maintenance Department costs areallocated equally among the production departments.
How much is allocated to each department?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 6
Direct and Indirect Costs Example
Direct and Indirect Costs Example
Allocated$20,000
Maintenance$40,000
AssemblyDirect Costs
$75,000
FinishingDirect Costs
$55,000
$20,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 7
Cost Behavior Patterns ExampleCost Behavior Patterns Example
Bicycles by the Sea buys a handlebarat $52 for each of its bicycles.
What is the total handlebar cost when1,000 bicycles are assembled?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 8
Cost Behavior Patterns ExampleCost Behavior Patterns Example
1,000 units × $52 = $52,000
What is the total handlebar costwhen 3,500 bicycles are assembled?
3,500 units × $52 = $182,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 9
Cost Behavior Patterns ExampleCost Behavior Patterns Example
Bicycles by the Sea incurred $94,500 ina given year for the leasing of its plant.
This is an example of fixed costs withrespect to the number of bicycles assembled.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 10
Cost Behavior Patterns ExampleCost Behavior Patterns Example
What is the leasing (fixed) cost per bicyclewhen Bicycles assembles 1,000 bicycles?
$94,500 ÷ 1,000 = $94.50
What is the leasing (fixed) cost per bicyclewhen Bicycles assembles 3,500 bicycles?
$94,500 ÷ 3,500 = $27
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 11
Cost DriversCost Drivers
The cost driver of variable costs is the levelof activity or volume whose change causes
the (variable) costs to change proportionately.
The number of bicycles assembled is acost driver of the cost of handlebars.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 12
Relevant Range ExampleRelevant Range Example
Assume that fixed (leasing) costs are $94,500for a year and that they remain the same for a
certain volume range (1,000 to 5,000 bicycles).
1,000 to 5,000 bicycles is the relevant range.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 13
Relevant Range ExampleRelevant Range Example
020000400006000080000
100000120000
0 1000 2000 3000 4000 5000 6000
Volume
Fix
ed C
osts
$94,500
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 14
Relationships of Types of CostsRelationships of Types of Costs
Direct
Indirect
Variable Fixed
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 15
Total Costs and Unit Costs Example
Total Costs and Unit Costs Example
What is the unit cost (leasing and handlebars)when Bicycles assembles 1,000 bicycles?
Total fixed cost $94,500+ Total variable cost $52,000 = $146,500
$146,500 ÷ 1,000 = $146.50
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 16
Total Costs and Unit CostsExample
Total Costs and Unit CostsExample
0
50000
100000
150000
200000
0 500 1000 1500
Volume
Tot
al C
osts
$94,500
$94,500 + $52x
$146,500
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 17
Use Unit Costs CautiouslyUse Unit Costs Cautiously
Assume that Bicycles management uses aunit cost of $146.50 (leasing and wheels).
Management is budgeting costs fordifferent levels of production.
What is their budgeted cost for anestimated production of 600 bicycles?
600 × $146.50 = $87,900
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 18
Use Unit Costs CautiouslyUse Unit Costs Cautiously
What is their budgeted cost for an estimatedproduction of 3,500 bicycles?
3,500 × $146.50 = $512,750
What should the budgeted cost be for anestimated production of 600 bicycles?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 19
Use Unit Costs CautiouslyUse Unit Costs Cautiously
Total fixed cost $ 94,500Total variable cost ($52 × 600) 31,200Total $125,700
$125,700 ÷ 600 = $209.50
Using a cost of $146.50 per unit wouldunderestimate actual total costs if output
is below 1,000 units.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 20
Use Unit Costs CautiouslyUse Unit Costs Cautiously
What should the budgeted cost be for anestimated production of 3,500 bicycles?
Total fixed cost $ 94,500Total variable cost (52 × 3,500) 182,000Total $276,500
$276,500 ÷ 3,500 = $79.00
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 21
ManufacturingManufacturing
Manufacturing companiespurchase materials and components and
convert them into finished goods.
Manufacturing companiespurchase materials and components and
convert them into finished goods.
A manufacturing company must also develop,design, market, and distribute its products.
A manufacturing company must also develop,design, market, and distribute its products.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 22
MerchandisingMerchandising
Merchandising companiespurchase and then sell tangible products
without changing their basic form.
Merchandising companiespurchase and then sell tangible products
without changing their basic form.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 23
MerchandisingMerchandising
Service companiesprovide services or intangibleproducts to their customers.
Service companiesprovide services or intangibleproducts to their customers.
Labor is the most significant cost category.Labor is the most significant cost category.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 24
Types of InventoryTypes of Inventory
Manufacturing-sector companiestypically have one or more of the
following three types of inventories:
1. Direct materials inventory
2. Work in process inventory (work in progress)
3. Finished goods inventory
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 25
Types of InventoryTypes of Inventory
Merchandising-sector companies holdonly one type of inventory – the
product in its original purchased form.
Service-sector companies do nothold inventories of tangible products.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 26
Classification ofManufacturing Costs
Classification ofManufacturing Costs
Direct materials costs
Direct manufacturing labor costs
Indirect manufacturing costs
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 27
Inventoriable CostsInventoriable Costs
Inventoriable costs (assets)…
become cost of goods sold…
after a sale takes place.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 28
Period CostsPeriod Costs
Period costs are all costs in the incomestatement other than cost of goods sold.
Period costs are recorded as expenses of theaccounting period in which they are incurred.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 29
Flow of Costs ExampleFlow of Costs Example
Bicycles by the Sea had $50,000 of directmaterials inventory at the beginning of the period.
Purchases during the period amounted to$180,000 and ending inventory was $30,000.
How much direct materials were used?
$50,000 + $180,000 – $30,000 = $200,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 30
Flow of Costs ExampleFlow of Costs Example
Direct labor costs incurred were $105,500.
Indirect manufacturing costs were $194,500.
What are the total manufacturing costs incurred?
Direct materials used $200,000Direct labor 105,500Indirect manufacturing costs 194,500Total manufacturing costs $500,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 31
Flow of Costs ExampleFlow of Costs Example
Assume that the work in process inventoryat the beginning of the period was $30,000,
and $35,000 at the end of the period.
What is the cost of goods manufactured?
Beginning work in process $ 30,000Total manufacturing costs 500,000Ending work in process 35,000Cost of goods manufactured $495,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 32
Flow of Costs ExampleFlow of Costs Example
Assume that the finished goods inventoryat the beginning of the period was $10,000,
and $15,000 at the end of the period.
What is the cost of goods sold?
Beginning finished goods $ 10,000Cost of goods manufactured 495,000Ending finished goods 15,000Cost of goods sold $490,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 33
Flow of Costs ExampleFlow of Costs Example
Work in ProcessBeg. Balance 30,000 495,000Direct mtls. used 200,000Direct labor 105,500Indirect mfg. costs 194,500Ending Balance 35,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 34
Flow of Costs ExampleFlow of Costs Example
Work in Process495,000
Finished Goods 10,000 490,000495,000 15,000
Cost of Goods Sold490,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 35
Manufacturing CompanyManufacturing Company
MaterialsInventory
FinishedGoods
Inventory
Revenues
Cost ofGoods Sold
INCOME STATEMENT
PeriodCosts
InventoriableCosts
BALANCE SHEET
Equals Operating Income
whensalesoccur
deduct
Equals Gross Margindeduct
Work inProcess
Inventory
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 36
Merchandising Company Merchandising CompanyINCOME STATEMENTBALANCE SHEET
whensalesoccur
InventoriableCosts
MerchandisePurchases Inventory
Revenuesdeduct
Cost ofGoods Sold
Equals Gross Margindeduct
PeriodCosts
Equals Operating Income
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 37
Prime CostsPrime Costs
DirectMaterials
DirectLabor
PrimeCosts+ =
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 38
Prime CostsPrime Costs
What are the prime costs for Bicycles by the Sea?
Direct materials used $200,000+ Direct labor 105,500= $305,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 39
Conversion CostsConversion Costs
DirectLabor
ManufacturingOverhead+ =
ConversionCosts
IndirectLabor
IndirectMaterials Other
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 40
Conversion CostsConversion Costs
What are the conversion costs forBicycles by the Sea?
Direct labor $105,500+ Indirect manufacturing costs 194,500= $300,000
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 41
Measuring CostsRequires JudgmentMeasuring Costs
Requires Judgment
Manufacturing labor-cost classificationsvary among companies.
The following distinctions are generally found:
Direct manufacturing labor
Manufacturing overhead
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 42
Measuring CostsRequires JudgmentMeasuring Costs
Requires Judgment
Manufacturing overhead
Indirect labor Managers’ salaries Payroll fringe costs
Forklift truck operators (internal handling of materials)
Janitors Rework labor
Overtime premium Idle time
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 43
Measuring CostsRequires JudgmentMeasuring Costs
Requires Judgment
Overtime premium is usuallyconsidered part of overhead.
Assume that a worker gets $18/hourfor straight time and gets
time and one-half for overtime.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 44
Measuring CostsRequires JudgmentMeasuring Costs
Requires Judgment
How much is the overtime premium?
$18 × 50% = $9 per overtime hour
If this worker works 44 hours on a givenweek, how much are his gross earnings?
Direct labor 44 hours × $18 = $792Overtime premium 4 hours × $ 9 = 36Total gross earnings $828
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 45
Many Meanings of Product CostMany Meanings of Product Cost
A product cost is the sum of the costsassigned to a product for a specific purpose.
1. Pricing and product emphasis decisions
2. Contracting with government agencies
3. Preparing financial statements for external reporting under generally accepted accounting principles