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1/43
Visit UMT online at www.umtweb.edu South-Western 2004Survey of Accounting, 2/e
1 of 43Chapter 10,
CCOUNTINGCCOUNTING
FUND MENT LS FOR
UND MENT LS FOR
M N GERS
N GERS
Uniersit! of Mana"ement and Te#hnolo"!
1$01 %orth &ort M!er 'rie
(rlin"ton) V( 2220$Voi#e* +,03 1/-003 &a* +,03 1/-0$
Website* www.umtweb.edu
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Task Force Clip ArtTask Force Clip Art
included in this electronicincluded in this electronic
presentation is used withpresentation is used withthe permission of Newthe permission of New
Vision Technology ofVision Technology of
Nepean Ontario, Canada.Nepean Ontario, Canada.
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3 of 43Chapter 10,
Chapter 10
hapter 10
ccounting Syte! "or
ccounting Syte! "or
Manu"acturing #uineeanu"acturing #uinee
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After studying thisAfter studying this
chapter, you shouldchapter, you should
be able to:be able to:
After studying thisAfter studying this
chapter, you shouldchapter, you should
be able to:be able to:
ContinuedContinued
ContinuedContinued
Learning O$%ecti&e
earning O$%ecti&e
1. Distinguish the activities of a manufacturing business fromthose of a merchandise or service business.
2. Define and illustrate materials, factory labor, and factory
overhead costs.3. Describe accounting systems used by manufacturing
businesses.
4. Describe and illustrate a job order cost accounting system.
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Learning O$%ecti&e
earning O$%ecti&e
5. Use job order cost information for decision making.
. Diagram the flo! of costs for a service business that uses ajob order cost accounting system.
". Describe just#in#time manufacturing.$. Describe and illustrate the use of activity#based costing in a
service business.
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1Distinguish the
activities of a
manufacturingbusiness from those of
a merchandise or
service business.
Learning O$%ecti&e
earning O$%ecti&e
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MerchandisingMerchandisingMerchandisingMerchandising
ManufacturingManufacturingManufacturingManufacturing
Reports:
Cost of merchandise soldMerchandise inventory
Reports:Cost of goods sold
Materials inventory
Work in process inventory
Finished goods inventory
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8/43
of 43Visit UMT online at www.umtweb.eduChapter 10,
Define andillustrate materials!
factory labor! andfactory overheadcosts.
Learning O$%ecti&e
earning O$%ecti&e
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9/43
$ of 43Visit UMT online at www.umtweb.eduChapter 10,
ost lassifi#ationsost lassifi#ations
erioderiod
ostsosts
erioderiodostsosts
Sellin"
5enses
Sellin"
5enses
(dministratie5enses
(dministratie5enses
'ire#tMaterials
'ire#t
Materials
&a#tor!6erhead
&a#tor!6erhead
'ire#t7abor
'ire#t7abor
rodu#trodu#t
ostsosts
rodu#trodu#t
ostsosts
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Manufa#turin" ostsManufa#turin" osts
1. nters dire#tl! into the 5rodu#t.
2. 8s si"nifi#ant amount of total 5rodu#t #ost.
1. nters dire#tl! into manufa#turin" the 5rodu#t.
2. 8s si"nifi#ant amount of total 5rodu#t #ost.
ost other than dire#t materials #ost and dire#tlabor #ost in#urred in the manufa#turin" of 5rodu#t.
'ire#t Materials*'ire#t Materials*
'ire#t 7abor*'ire#t 7abor*
&a#tor! 6erhead*&a#tor! 6erhead*
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Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations
rodu#t osts
Materialsur#hases
Materialsur#hases
eriod osts
'ire#t
7abor
'ire#t
7abor
&a#tor!6erhead
&a#tor!6erhead
Sellin" and(dministratie
Sellin" and(dministratie
ostsosts
9alan#e Sheet
8n#ome Statement
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9alan#e Sheet
Materials8nentor!
Materials8nentor!
Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations
rodu#t osts
Materialsur#hases
Materialsur#hases
eriod osts
8n#ome Statement
'ire#t
7abor
'ire#t
7abor
&a#tor!6erhead
&a#tor!6erhead
Sellin" and(dministratie
Sellin" and(dministratie
ostsosts
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Wor: inro#ess
8nentor!
Wor: in
ro#ess8nentor!
9alan#e Sheet
Materials8nentor!
Materials8nentor!
Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations
rodu#t osts
Materialsur#hases
Materialsur#hases
eriod osts
8n#ome Statement
'ire#t
7abor
'ire#t
7abor
&a#tor!6erhead
&a#tor!6erhead
Sellin" and(dministratie
Sellin" and(dministratie
ostsosts
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&inished;oods
8nentor!
&inished;oods
8nentor!
Wor: inro#ess
8nentor!
Wor: in
ro#ess8nentor!
9alan#e Sheet
Materials8nentor!
Materials8nentor!
Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations
rodu#t osts
Materialsur#hases
Materialsur#hases
eriod osts
8n#ome Statement
'ire#t
7abor
'ire#t
7abor
&a#tor!6erhead
&a#tor!6erhead
Sellin" and(dministratie
Sellin" and(dministratie
ostsosts
ost of ;oodsManufa#tured
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ost of
;oods Sold
ost of;oods Sold
&inished;oods
8nentor!
&inished;oods
8nentor!
Wor: inro#ess
8nentor!
Wor: in
ro#ess8nentor!
9alan#e Sheet
Materials8nentor!
Materials8nentor!
Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations
rodu#t osts
Materialsur#hases
Materialsur#hases
eriod osts
8n#ome Statement
'ire#t
7abor
'ire#t
7abor
&a#tor!6erhead
&a#tor!6erhead
Sellin" and(dministratie
Sellin" and(dministratie
ostsosts
rodu#t #ostsflow throu"h thebalan#e sheet to
the in#ome
statement
rodu#t #ostsflow throu"h thebalan#e sheet to
the in#ome
statement
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Sellin" and(dministratie
Sellin" and(dministratie
ost of
;oods Sold
ost of;oods Sold
&inished;oods
8nentor!
&inished;oods
8nentor!
Wor: inro#ess
8nentor!
Wor: in
ro#ess8nentor!
9alan#e Sheet
Materials8nentor!
Materials8nentor!
Manufa#turin" ost &lows and lassifi#ationsManufa#turin" ost &lows and lassifi#ations
rodu#t osts
Materialsur#hases
Materialsur#hases
eriod osts
8n#ome Statement
'ire#t
7abor
'ire#t
7abor
&a#tor!6erhead
&a#tor!6erhead
Sellin" and(dministratie
Sellin" and(dministratie
ostsosts
eriod #osts flowdire#tl! to the
in#ome statement
eriod #osts flowdire#tl! to the
in#ome statement
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"Describeaccounting
systems used bymanufacturingbusinesses.
Learning O$%ecti&e
earning O$%ecti&e
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ost (##ountin" S!stemsost (##ountin" S!stems
1. Man! different
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#Describe and illustratea $ob order cost
accounting system.
Learning O$%ecti&e
earning O$%ecti&e
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Materials 8nformation and ost &lowsMaterials 8nformation and ost &lows
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials'ire#t 7abor&a#tor! 6erhead
=ob ,24)000 units of (l"ebra
'ire#t Materials'ire#t 7abor&a#tor! 6erhead
Materials@eAuisitions
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Materials 8nformation and ost &lowsMaterials 8nformation and ost &lows
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor&a#tor! 6erhead
=ob ,24)000 units of (l"ebra
'ire#t Materials ?11)000'ire#t 7abor&a#tor! 6erhead
Materials@eAuisitions
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7abor 8nformation and ost &lows7abor 8nformation and ost &lows
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor&a#tor! 6erhead
=ob ,24)000 units of (l"ebra
'ire#t Materials ?11)000'ire#t 7abor&a#tor! 6erhead
TimeTi#:ets
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7abor 8nformation and ost &lows7abor 8nformation and ost &lows
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead
=ob ,24)000 units of (l"ebra
'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead
TimeTi#:ets
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redetermined &a#tor! 6erhead @atesredetermined &a#tor! 6erhead @ates
(#tiit! base eam5les
stimated total
fa#tor! oerhead #osts
stimated a#tiit! base
redeterminedfa#tor! oerhead rate
B
1. 'ire#t labor hours2. 'ire#t labor dollars3. Ma#hine hours4. 'ire#t materials. 6ther
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redetermined &a#tor! 6erhead @atesredetermined &a#tor! 6erhead @ates
stimated total
fa#tor! oerhead #osts
stimated a#tiit! base
redeterminedfa#tor! oerhead rate
B
Wh! is the 5redetermined oerhead rate #al#ulated fromestimated numbers at the be"innin" of the 5eriodC
8t is a tradeoff between a##ura#! and timeliness.8f a #om5an! waited until the end of an a##ountin" 5eriod)
when all oerhead #osts are :nown) the allo#ated fa#tor!oerhead would be a##urate but not timel!.
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redetermined &a#tor! 6erhead @atesredetermined &a#tor! 6erhead @ates
stimated total
fa#tor! oerhead #osts
stimated a#tiit! base
redeterminedfa#tor! oerhead rate
B
?0)000 estimatedfa#tor! oerhead #osts
10)000 estimateddire#t labor hours
B
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redetermined &a#tor! 6erhead @atesredetermined &a#tor! 6erhead @ates
stimated total
fa#tor! oerhead #osts
stimated a#tiit! base
redeterminedfa#tor! oerhead rate
B
?0)000 estimatedfa#tor! oerhead #osts
10)000 estimateddire#t labor hours
B? 5er dire#tlabor hour
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redetermined &a#tor! 6erhead @atesredetermined &a#tor! 6erhead @ates
stimated total
fa#tor! oerhead #osts
stimated a#tiit! base
redeterminedfa#tor! oerhead rate
B
?0)000 estimatedfa#tor! oerhead #osts
10)000 estimateddire#t labor hours
B? 5er dire#tlabor hour
&or ea#h dire#t labor
hour wor:ed) fa#tor!oerhead a55lied is ?.
=ob ,1 30 ? B ?1),0=ob ,2 00 ? B ?2)00
'ire#t &a#tor!7abor 6erhead>ours (55lied
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(ssi"nin" &a#tor! 6erhead to =obs(ssi"nin" &a#tor! 6erhead to =obs
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead
=ob ,24)000 units of (l"ebra
'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead
Time Ti#:etsredetermined
6erhead @ates
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(ssi"nin" &a#tor! 6erhead to =obs(ssi"nin" &a#tor! 6erhead to =obs
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead 1),0
=ob ,24)000 units of (l"ebra
'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead 2)00
Time Ti#:etsredetermined
6erhead @ates
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Summar! of =ob ost SheetsSummar! of =ob ost Sheets
=ob ,1
1)000 units of (meri#an >istor!
9alan#e ? 3)000'ire#t Materials 2)000'ire#t 7abor 3)00&a#tor! 6erhead 1),0
Total =ob ost ?10)20
=ob ,24)000 units of (l"ebra
'ire#t Materials ?11)000'ire#t 7abor ,)00&a#tor! 6erhead 2)00 ?21)000
Total of debits toWor: in ro#ess
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;oodwell rinters8n#ome Statement
&or the Month nded 'e#ember 31) 2004
Sales ?2)000
ost of "oods sold 20)10;ross 5rofit ? ,)0
Sellin" and admin. e5enses*
Sales salaries e5ense ?2)000
6ffi#e salaries e5ense 1)00
Total sellin" and admin.
e5enses 3)00
8n#ome from o5erations ? 4)30
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%&se $ob order cost
information for
decision making.
Learning O$%ecti&e
earning O$%ecti&e
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'ob 1##
(tem: )) folding chairs
Materials
Quantity
(board feet
Materials
!rice
Materials
"mount
Direct materials:
Wood
Direct materials per chair
1!*)) +".%) +%!*))+,
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'ob 1*"
(tem: )) folding chairs
Materials
Quantity
(board feet
Materials
!rice
Materials
"mount
Direct materials:
WoodDirect materials per chair
!))) +".%) +-!)))+"%
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3/ of 43Visit UMT online at www.umtweb.eduChapter 10,
*Diagram the flo of
costs for a service
business that uses a $oborder cost accounting
system.
Learning O$%ecti&e
earning O$%ecti&e
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#ages !ayable
Direct labor ///
(ndirect labor ///$actory
O%erhead
#or& in !rocess Cost of 'er%ices
(ndirect labor ///
0upplies used ///
pplied overhead 2///3
Direct labor ///
pplied overhead ///
Completed $obs 2///3
Completed $obs ///
'upplies
&sed ///
F'o( o" Cot Through a
'o( o" Cot Through a
Ser&ice #uine
er&ice #uine
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-Describe $ust4in4time
manufacturing.
Learning O$%ecti&e
earning O$%ecti&e
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8ssue
=ust-in-Time
Manufa#turin"
Traditional
Manufa#turin"
%nventory &educes inventory. %ncreases inventory to 'buffer(or )rotect against )rocess)roblems.
*ead time &educes lead time. %ncreases lead time as abuffer against uncertainty.
+etu) time &educes setu) time. Disregards setu) time as anim)rovement )riority.
roduction layout -m)hasies )roduct#orientedlayout.
-m)hasies )rocess#orientedlayout.
ContinuedContinuedContinuedContinued
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8ssue
=ust-in-Time
Manufa#turin"
Traditional
Manufa#turin"
&ole of the -m)loyee -m)hasies team#orientedem)loyee involvement.
-m)hasies !ork ofindividuals, follo!ingmanager instructions.
roduction scheduling )olicy -m)hasies )ullmanufacturing.
-m)hasies )ushmanufacturing.
/uality -m)hasies ero defects. 0olerates defects.
+u))liers -m)hasies su))lier)artnering.
0reats su))liers as 'arms#length,( inde)endent entities.
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,Describe and illustrate
the use of activity4
based costing in aservice business.
Learning O$%ecti&e
earning O$%ecti&e
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(#tiit!
(#tiit!-9ase
Usa"e
(#tiit!
@ate B
(#tiit!
ost
dmitting 1 admission 1$ )er admission 1$
&adiological testing 2 images 32 )er image 4
6)erating room 4 hours 2 )er hour $
athological testing 1 s)ecimen 12 )er s)ecimen 12
Dietary and laundry " days 15 )er day 1,5
0otal 2,"7
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43/43
O!)#)** O'!+T"*
Customer (!atient !rofitability eport
$or the !eriod )nding -ecember /, 0112
(d#o#:)Dim
9irini)9rian
onwa!)'on
Wilson)Mar!
&evenues 7,5 21,4 5,5 3,3
*ess )atient costs8
Drugs and su))lies 4 1, 3 2
dmitting 1$ 1$ 1$ 1$
&adiological testing 1,2$ 2,5 1,2$ 4
6)erating room 2,4 ,4 1, $
athological testing 24 12 12
Dietary and laundry 4,2 14," 1,5 1,5
0otal )atient costs $," 25,44 4,53 2,77
%ncome from o)erations $ 94,4: 52 31