Kế toán, kiểm toán - Chapter 2: Measuring product costs

1Measuring Product Costs CHAPTER 2Managerial Accounting 11E Maher/Stickney/Weil© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PowerPoint Presentation by LuAnn BeanProfessor of AccountingFlorida Institute of Technology2CHAPTER GOALThis chapter shows how the accounting system records and reports the flow of costs in organizations to answer questions such as these:To determine product/service costTo compare cost with management’s expectations☼☼3DIRECT MATERIALS: DefinitionCan be easily traced directly to a product.LO 14DIRECT LABOR: DefinitionIs labor of workers who transform materials into a finished product.LO 15MANUFACTURING OVERHEAD: DefinitionIncludes all other costs of transforming the materials to a finished product. LO 16How are materials, labor not directly traceable to a product categorized?All costs, including materials and labor, not directly traceable to a product are categorized as Manufacturing Overhead.LO 17RESPONSIBILITY CENTER: DefinitionIs any organizational unit with its own manager or managers.LO 28Responsibility center (department)Records costs &assigns to productsDirect materialsDirect laborOverhead Management comparescosts to standardsLO 29ACCOUNTING SYSTEM PURPOSESTo record costs by responsibility for performance evaluation and control.To assign manufacturing costs to units produced for product costing.LO 310BASIC COST FLOW EQUATIONLO 3Beginning + Transfers = Transfers + EndingBalance In Out BalanceBB + TI = TO + EB**Recall from financial accounting: Beginning Balance + Additions - Withdrawals = Ending Balance11COMPARING NORMAL and ACTUAL COSTINGNormal costing advantagesSmoothes seasonal and other fluctuations that don’t relate directly to activity levelsMore timely than actual because of estimating processLO 412USING NORMAL COSTINGSelect a cost driver (allocation base) to apply overheadEstimate dollar amount of overhead and level of activity for periodCompute predetermined (normal) overhead rateApply overhead to productionLO 413EXAMPLEPlantimum Builders manually assembles small modular homes. Using prior year data, Plantimum estimated variable manufacturing overhead at $100,000, 50,000 direct labor hours, and $50,000 fixed manufacturing overhead.What is Plantimum’s variable overhead rate?LO 4$100,000 / 50,000 dlh = $2.00 per direct labor hour$ 50,000 / 50,000 dlh = $1.00 per direct labor hourWhat is Plantimum’s fixed overhead rate?14EXAMPLEActual direct labor hours for the month was 4,500.How much variable overhead did Plantimum charge to production for the month?LO 44,500 dlh X $2.00 per direct labor hour = $9,0004,500 dlh X $1.00 per direct labor hour = $4,500How much fixed overhead did Plantimum charge to production for the month?15COST SYSTEMSAn effective cost system must haveDecision focus: meets needs of decision makersDifferent costs for different purposesVariable costing for decision makingFull absorption for financial reportingCost-benefit test: benefits from cost system must exceed its costsLO 516COST SYSTEMS: ExamplesJob costingFor custom production jobsUsers: accounting and consulting firms, health care organizationsProcess costingFor standardized productionUsers: drink makers (e.g., Coca Cola, etc.)Operation costingA hybrid of job and process combinedUsers: Levi Strauss, DellLO 517PLANTIMUM PRODUCTIONPlantimum produced 3 modular homes during the month. Plantimum wonders whether they should use job order costing or process costing? What do you think?ContinuedLO 618PLANTIMUM PRODUCTION COSTS: Using Job OrderJobsDirectLaborDirectMaterialsOverhead($3/dlh)TotalCostJob #1001$ 8,000$20,800$1,200$30,000Job #10026,00018,10090025,000Job #10035,00011,25075017,000$19,000$50,150$2,850$72,000LO 6Continued19PLANTIMUM PRODUCT COSTING: Using Process LO 6Unit costs = Total manufacturing costs / Units produced(DL + DM + Overhead) / 3($19,000 + $50,150 + $2,850) / 3Average unit cost is $24,000 per modular houseContinued20COMPARING COST SYSTEMSNature of ProductionCosting System UsedHeterogeneous UnitsEach Unit LargeJob CostingHomogeneous UnitsMany Small UnitsContinuous ProcessProcess CostingLO 721FLOW OF COSTS: A Service Company ExampleLO 8An accounting or consulting service firm collects costs by job or client and uses an accounting method similar to that used in manufacturing. The flow of costs accounted for include:Materials and overhead costs are transferred into Work-in-Process accounts for each job.Work-in-Process costs are transferred to Cost of Services Billed. 22FLOW OF COSTS REPORTINGThe income statement reports: RevenueCost of services billed= Gross MarginExpenses (e.g., unbilled direct labor, underapplied overhead, marketing expenses)= Operating ProfitLO 823CHARACTERISTICS OF JIT: (Just- in-Time Inventory)JIT inventory methods attempt to obtain materials just in time for production or saleReduces/eliminates inventory and carrying costsLeads to immediate correction of defective unitsHelps expose production problemsRelies on high-quality materials, productionCharges all costs directly to cost of goods soldLO 1024What happens to inventory leftover after costs are charged to cost of goods sold in a JIT system?Cost of leftover inventory is “backflushed,” i.e., taken out of cost of goods sold and put into finished goods inventory.LO 1025What are equivalent units?Equivalent units (E.U.) represent the translation of partially completed work into equivalent whole units.LO 1126Summarize the Flow of Physical UnitsCompute Equivalent Units (For example, two units, each 50 percent complete, represent one equivalent unit.)Summarize Costs to Be Accounted ForCompute Unit Costs for the Current PeriodCompute the Cost of Goods Completed and Transferred Out of Work-in-Process and the Cost of Ending Work-in-Process InventoryLO 11The five steps required to compute product costs, the cost of ending Work-in- Process Inventory, and the cost of finished goods using equivalent units are:27Costs flow from basic records of materials purchases, labor costs, and overhead costs to Work-in-Process Inventory accounts that show the cost of ongoing work. When products are complete, they and their costs are transferred to Finished Goods Inventory. When sold, the cost of the products is transferred out of Finished Goods Inventory to Cost of Goods Sold.28End of CHAPTER 2