© 2012 Pearson Prentice Hall. All rights reserved. Accumulating and Assigning Costs to Products...
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Transcript of © 2012 Pearson Prentice Hall. All rights reserved. Accumulating and Assigning Costs to Products...
© 2012 Pearson Prentice Hall. All rights reserved.
Accumulating and Assigning Accumulating and Assigning Costs to Products Costs to Products
Chapter 4
© 2012 Pearson Prentice Hall. All rights reserved.
Cost Flows in OrganizationsCost Flows in Organizations In order to compute product costs, management
accounting systems should reflect the actual cost flows in an organization
Manufacturing, retail, and service organizations have different patterns of cost flows resulting in different management accounting priorities
Cost Flows in a Manufacturing Cost Flows in a Manufacturing OrganizationOrganization
3
Cost Flows in a Retail Cost Flows in a Retail OrganizationOrganization
4
Cost Flows in a Service Cost Flows in a Service OrganizationOrganization
5
© 2012 Pearson Prentice Hall. All rights reserved.
Cost TermsCost Terms Cost Object—is anything for which a cost is
computed– Examples of cost objects are: activities, products,
product lines, departments, or even entire organizations
Resource CostsResource Costs
Consumable Resource Consumed or used up by the
production process Cost of depends on how
much of the resource is used Examples
– Wood in furniture making– Engines in auto making– Processors in laptop making
Capacity-Related Resource Supports the production
process Cost depends on how much
of the resource is acquired Examples
– Supervisory labour– Warehouse space– Admin Employees
7
© 2012 Pearson Prentice Hall. All rights reserved.
Cost TermsCost Terms Direct Cost—a cost that is uniquely and
unequivocally attributable to a single cost object– Almost all variable costs are direct costs
Indirect Cost—a cost that fails the test of being direct is classified as indirect– Most capacity-related costs are indirect
Which costs are direct/indirect of you going to WLU?
Direct vs. IndirectDirect vs. Indirect
TuitionJoining a sororityBuying a laptopAdditional fees on Laurier bill (excl tuition)Books
Costing System ArchitectureCosting System Architecture
10
Applied and Incurred Indirect Applied and Incurred Indirect CostsCosts
11
How are Indirect Costs How are Indirect Costs Applied?Applied?
12
The Best Arguments for Using The Best Arguments for Using Practical CapacityPractical Capacity
Provides a solid basis to compute long run cost Isolates the cost of idle capacity which is charged
to the income statement instead of being included in inventory valuations
13
Product CostingProduct Costing
Job Order
Allocates costs to productsthat are readily identifiable
Common in construction,print shops, unique goods
Accumulate costs forspecific jobs
Produce for sale
Process Costing
Average costs over large number of nearly identical units
Common in chemical, textiles, lumber, glass, food processing
Accumulate costs by departments
Produce for inventory
Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge direct Charge direct material and material and direct labour direct labour costs to each costs to each job as work is job as work is
performed.performed.
Charge direct Charge direct material and material and direct labour direct labour costs to each costs to each job as work is job as work is
performed.performed.
Job-Order Costing – An Job-Order Costing – An OverviewOverview
Direct MaterialsDirect Materials
Direct LabourDirect Labour
Manufacturing Manufacturing Overhead, Overhead, including including indirect indirect
materialsmaterials and and indirect labourindirect labour, , are allocated are allocated
to all jobs to all jobs rather than rather than
directly traced directly traced to each job.to each job.
Manufacturing Manufacturing Overhead, Overhead, including including indirect indirect
materialsmaterials and and indirect labourindirect labour, , are allocated are allocated
to all jobs to all jobs rather than rather than
directly traced directly traced to each job.to each job.
Direct Manufacturing CostsDirect Manufacturing Costs
Direct MaterialsDirect Materials
Direct LabourDirect Labour
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3Manufacturing Overhead
Manufacturing Overhead