Kế toán, kiểm toán - Chapter 2: Managerial accounting and cost concepts

Managerial Accounting and Cost ConceptsChapter 2Work of Management PlanningControllingDirecting and MotivatingPlanningIdentifyalternatives.Select alternative that does the best job of furtheringorganization’s objectives.Develop budgets to guideprogress toward theselected alternative.Directing and Motivating Directing and motivating involves managing day-to-day activities to keep the organization running smoothly.Employee work assignments.Routine problem solving.Conflict resolution.Effective communications.ControllingThe control function ensuresthat plans are being followed. Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.Planning and Control CycleDecisionMakingFormulating long-and short-term plans (Planning)Measuringperformance (Controlling)Implementing plans (Directing and Motivating)Comparing actualto planned performance (Controlling)BeginLearning Objective 1Identify the major differences and similarities between financial and managerial accounting.Comparison of Financial and Managerial AccountingLearning Objective 2Identify and give examples of each of the three basic manufacturing cost categories.The ProductDirectMaterialsDirectLaborManufacturingOverheadManufacturing CostsDirect Materials Raw materials that become an integral part of the product and that can be conveniently traced directly to it.Example: A radio installed in an automobileDirect LaborThose labor costs that can be easily traced to individual units of product.Example: Wages paid to automobile assembly workersManufacturing costs that cannot be traced directly to specific units produced.Manufacturing OverheadExamples: Indirect materials and indirect laborNonmanufacturing CostsAdministrative CostsAll executive, organizational, and clerical costs.Learning Objective 3Distinguish between product costs and period costs and give examples of each.Product Costs Versus Period Costs Product costs include direct materials, direct labor, and manufacturing overhead.Period costs include all selling costs and administrative costs. InventoryCost of Good SoldBalanceSheetIncomeStatementSaleExpenseIncomeStatementQuick Check  Which of the following costs would be considered a period rather than a product cost in a manufacturing company?A. Manufacturing equipment depreciation.B. Property taxes on corporate headquarters.C. Direct materials costs.D. Electrical costs to light the production facility.E. Sales commissions.Quick Check  Which of the following costs would be considered a period rather than a product cost in a manufacturing company?A. Manufacturing equipment depreciation.B. Property taxes on corporate headquarters.C. Direct materials costs.D. Electrical costs to light the production facility.E. Sales commissions.Classifications of CostsDirectMaterialDirectLaborManufacturingOverheadPrimeCostConversionCostManufacturing costs are oftenclassified as follows:Comparing Merchandising and Manufacturing CompaniesMerchandisers . . .Buy finished goods.Sell finished goods. Manufacturers . . .Buy raw materials.Produce and sell finished goods.MegaLoMartBalance Sheet Merchandiser Current assetsCashReceivablesMerchandise Inventory Manufacturer Current AssetsCashReceivablesInventoriesRaw MaterialsWork in ProcessFinished Goods Merchandiser Current assetsCashReceivablesMerchandise Inventory Manufacturer Current AssetsCashReceivablesInventoriesRaw MaterialsWork in ProcessFinished GoodsBalance SheetLearning Objective 4Prepare an income statement including calculation of the cost of goods sold.The Income Statement Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.Basic Equation for Inventory Accounts BeginningbalanceAdditionsto inventory+=EndingbalanceWithdrawalsfrominventory+Quick Check  If your inventory balance at the beginning of the month was $1,000, you bought $100 during the month, and sold $300 during the month, what would be the balance at the end of the month?A. $1,000.B. $ 800.C. $1,200.D. $ 200.Quick Check  If your inventory balance at the beginning of the month was $1,000, you bought $100 during the month, and sold $300 during the month, what would be the balance at the end of the month?A. $1,000.B. $ 800.C. $1,200.D. $ 200.$1,000 + $100 = $1,100$1,100 - $300 = $800Learning Objective 5Prepare a schedule of cost of goods manufactured.Schedule of Cost of Goods ManufacturedCalculates the cost of raw material, direct labor, and manufacturing overhead used in production.Calculates the manufacturing costs associated with goods that were finished during the period.As items are removed from raw materials inventory and placed into the production process, they arecalled direct materials. Product Cost FlowsProduct Cost FlowsProduct Cost FlowsAll manufacturing costs incurred during the period are added to the beginning balance of work in process. Product Cost FlowsCosts associated with the goods that are completed during the period are transferred to finished goods inventory.Product Cost FlowsManufacturing Cost FlowsFinishedGoodsCost of GoodsSoldSelling andAdministrativePeriod CostsSelling andAdministrativeManufacturingOverhead Work in ProcessDirect Labor Balance Sheet Costs Inventories Income StatementExpensesMaterial PurchasesRaw MaterialsQuick Check  Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used?A. $276,000B. $272,000C. $280,000D. $ 2,000 Quick Check  Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used?A. $276,000B. $272,000C. $280,000D. $ 2,000 Quick Check  Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month?A. $555,000B. $835,000C. $655,000D. Cannot be determined. Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month?A. $555,000B. $835,000C. $655,000D. Cannot be determined.Quick Check Quick Check  Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month?A. $1,160,000B. $ 910,000C. $ 760,000D. Cannot be determined. Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month?A. $1,160,000B. $ 910,000C. $ 760,000D. Cannot be determined. Quick Check Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month?A. $ 20,000.B. $740,000.C. $780,000.D. $760,000.Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month?A. $ 20,000.B. $740,000.C. $780,000.D. $760,000.$130,000 + $760,000 = $890,000$890,000 - $150,000 = $740,000Learning Objective 6Understand the differences between variable costs and fixed costs.Cost Classifications for Predicting Cost Behavior How a cost will react to changes in the level of activity within the relevant range.Total variable costs change when activity changes.Total fixed costs remain unchanged when activity changes.Variable Cost Your total texting bill is based on how many texts you send.Number of Texts SentTotal Texting BillVariable Cost Per UnitNumber of Texts SentCost Per Text Sent The cost per text sent is constant at 5 cents per text.Fixed Cost Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract. The monthly contract fee does not change based on the number of calls you make.Number of Minutes UsedWithin Monthly PlanMonthly Cell Phone Contract Fee Fixed Cost Per UnitNumber of Minutes UsedWithin Monthly PlanMonthly Cell Phone Contract FeeWithin the monthly contract allotment, the average fixed cost per cell phone call made decreases as more calls are made.Cost Classifications for Predicting Cost BehaviorQuick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)A. The cost of lighting the store.B. The wages of the store manager.C. The cost of ice cream.D. The cost of napkins for customers.Quick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)A. The cost of lighting the store.B. The wages of the store manager.C. The cost of ice cream.D. The cost of napkins for customers.Learning Objective 7Understand the differences between direct and indirect costs.Assigning Costs to Cost ObjectsDirect costsCosts that can beeasily and conveniently traced to a unit of product or other cost object.Examples: direct material and direct laborIndirect costsCosts that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overheadLearning Objective 8Define and give examples of cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs.Every decision involves a choice between at least two alternatives.Only those costs and benefits that differ between alternatives are relevant in a decision. All other costs and benefits can and should be ignored.Cost Classifications for Decision MakingDifferential Cost and RevenueCosts and revenues that differ among alternatives. Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. Differential revenue is: $2,000 – $1,500 = $500Differential cost is: $300Opportunity Cost The potential benefit that is given up when one alternative is selected over another.Example: If you werenot attending college,you could be earning$15,000 per year. Your opportunity costof attending college for one year is $15,000.Sunk Costs Sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions. Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland?A. Yes, the cost of the train ticket is relevant.B. No, the cost of the train ticket is not relevant.Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland?A. Yes, the cost of the train ticket is relevant.B. No, the cost of the train ticket is not relevant.Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?A. Yes, the licensing cost is relevant.B. No, the licensing cost is not relevant.Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?A. Yes, the licensing cost is relevant.B. No, the licensing cost is not relevant.Quick Check  Suppose that your car could be sold now for $5,000. Is this a sunk cost?A. Yes, it is a sunk cost.B. No, it is not a sunk cost.Quick Check  Suppose that your car could be sold now for $5,000. Is this a sunk cost?A. Yes, it is a sunk cost.B. No, it is not a sunk cost.Summary of the Types of Cost ClassificationsFinancial ReportingPredicting Cost BehaviorAssigning Costs to Cost ObjectsMaking Business DecisionsFurther Classification of Labor Costs Appendix 2ALearning Objective 9(Appendix 2A)Properly account for labor costs associated with idle time, overtime, and fringe benefits.Idle TimeThe labor costs incurred during idle time are ordinarily treated as manufacturing overhead. Machine BreakdownsMaterial ShortagesPower FailuresOvertimeThe overtime premiums for all factory workers are usually considered to be part of manufacturing overhead. Labor Fringe BenefitsFringe benefits include employer paid costs for insurance programs, retirement plans, supplemental unemployment programs, Social Security, Medicare, workers’ compensation, and unemployment taxes.Some companies include all of these costs in manufacturing overhead.Other companies treat fringe benefit expenses of direct laborers as additional direct labor costs.Cost of Quality Appendix 2BLearning Objective 10(Appendix 2B)Identify the four types of quality costs and explain how they interact.Quality of ConformanceWhen the overwhelming majority of products produced conform to design specifications and are free from defects.Prevention and Appraisal CostsAppraisal CostsIncurred to identify defective products before the products are shipped to customersInternal and External Failure CostsInternal Failure CostsIncurred as a result of identifying defects before they are shippedExternal Failure CostsIncurred as a result of defective products being delivered to customersExamples of Quality CostsPrevention Costs Quality training Quality circles Statistical process control activitiesAppraisal Costs Testing and inspecting incoming materials Final product testing Depreciation of testing equipmentInternal Failure Costs Scrap Spoilage ReworkExternal Failure Costs Cost of field servicing and handling complaints Warranty repairs Lost salesDistribution of Quality CostsLearning Objective 11(Appendix 2B)Prepare and interpret a quality cost report.Quality cost reports provide an estimate of the financial consequences of the company’s current defect rate.Quality Cost Reports in Graphic FormQuality reports can also be prepared in graphic form.Uses of Quality Cost InformationHelp managers see the financial significance of defects.Help managers identify the relative importance of the quality problems.Help managers see whether their quality costs are poorly distributed.Limitations of Quality Cost Information Simply measuring and reporting quality cost problems does not solve quality problems.Results usually lag behind quality improvement programs.The most important quality cost, lost sales, is often omitted from quality cost reports.ISO 9000 StandardsISO 9000 standards have become international measures of quality.To become ISO 9000 certified, a company must demonstrate:A quality control system is in use, and the system clearly defines an expected level of quality.The system is fully operational and is backed up with detailed documentation of quality control procedures.The intended level of quality is being achieved on a sustained basis.End of Chapter 2