Post on 26-Sep-2015
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Study Objectives
Explain the cost assignment process.
Define tangible and intangible products, and explain why there are different product cost definitions.
Prepare income statements for manufacturing and service organizations.
Explain the differences between traditional and contemporary cost management systems.
Cost Assignment: Direct Tracing,
Driver Tracing and Allocation
Cost Assignment: Direct Tracing,
Driver Tracing and Allocation
Cost Assignment Methods
Examples of Product Cost Definitions
Product Costs
Direct materials: those materials directly traceable to the goods or services being produced.
Example: The cost of wood in furniture.
Direct labor: labor that is directly traceable to the goods or services being produced.
Example: Wages of assembly-line workers.
Overhead: all other manufacturing costs.
Example: Plant depreciation, utilities, property taxes, indirect materials, indirect labor, etc.
Prime and Conversion Costs
Nonproduction Costs
Amount and timing of benefit cannot be reasonably estimatedPeriod costs
Not inventoriedExpensed as incurredExamplesResearch and developmentMarketing costsAdministrative costsProduction and Nonproduction Costs
External Financial Statements
Income Statement ~ Manufacturing FirmFunctional categories of expenseCost of goods soldOperating expensesSupporting schedulesCost of goods manufacturedCost of goods soldIncome Statement ~ Service OrganizationNo finished goods inventoryIncome Statement: Manufacturing Firm
From the Cost of Goods Sold Schedule
Sheet1Manufacturing OrganizationIncome StatementFor the Year Ended December 31, 2009Sales$ 2,000,000Less: Cost of Goods Sold1,300,000Gross margin$ 700,000Less operating expenses:Research and development$ 100,000Selling300,000Administrative150,000550,000Operating income$ 150,000Statement of Cost of Goods Manufactured
Cost of Goods Sold Schedule
Cost Management Systems
Functional-BasedAssumes a linear production cost behaviorAssigns costs to organizational unitsActivity-BasedEmphasizes tracing over allocationIdentifies non-unit-based activity driversFunctional-Based
Cost Management
Activity-Based
Cost Management
Trade-Off between Measurement Costs and Error Costs
Shifting Costs
COST MANAGEMENT
Accounting & ControlHansenMowenGuan
End Chapter 2
DirectDirectPrime
+=
MaterialsLaborCosts
DirectOverheadConversion
+=
MaterialsCostsCosts
Sales2,000,000$
Less: Cost of Goods Sold1,300,000
Gross margin700,000$
Less operating expenses:
Research and development100,000$
Selling300,000
Administrative150,000 550,000
Operating income150,000$
Manufacturing Organization
Income Statement
For the Year Ended December 31, 2009