1、2020/1/20,1,CHAPTER 2,An Introduction to Cost Terms and Purposes,2020/1/20,2,LEARNING OBJECTIVES,Define and illustrate a cost object Distinguish between direct costs and indirect costs Explain variable costs and fixed costs Interpret unit costs cautiously Distinguish among manufacturing companies, m
2、erchandising companies, and service-sector companies Describe the three categories of inventories commonly found in manufacturing companies Distinguish inventoriable costs from period costs Explain why product costs are computed in different ways for different purposes Describe a framework for cost
3、accounting and cost management,2020/1/20,3,Learning objective 1Define and illustrate a cost object,2-3,2020/1/20,4, Basic Cost Terminology,Cost Sacrificed resource to achieve a specific objective It is usually measured as the monetary amount that must be paid to acquire goods and services.,2-4,2020/
4、1/20,5, Basic Cost Terminology,Actual Cost A cost that has occurred, (a historical cost) Budgeted Cost A predicted cost Opportunity Cost The next best choice foregone. Cost Object Anything for which a separate measurement of costs is desired,2-5,2020/1/20,6,Cost Object Examples at BMW,2020/1/20,7,Co
5、st And Cost Terminology,2-7,Cost Accumulation,Cost Object,Cost Object,Cost Object,Cost Assignment,Tracing,Allocating,via,2020/1/20,8,BASIC COST TERMINOLOGY,CONTS.,Cost Accumulation describes the process of accumulating costs in some organized manner through the accounting system. Following accumulat
6、ion, costs are assigned to the chosen cost object. involves tracing and allocating costs Tracing：accumulated costs with a direct relationship to the cost object Allocating：accumulated costs with an indirect relationship to the cost object,2020/1/20,9,Learning objective 2Distinguish between direct co
7、sts and indirect costs,2-9,2020/1/20,10, Direct Costs and Indirect Costs,Direct costs of a cost object are those that are related to a given cost object (product, department, etc.) and that can be traced to it in an economically feasible way. Includes: Parts Assembly line wages Cost-Tracing describe
8、s the assignment of direct costs to the particular cost object.,2020/1/20,11,Indirect Costs,Indirect Costs Cannot be conveniently or economically traced (tracked) to a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner Indirect Costs
9、Includes: Electricity Rent Property taxes,2-11,2020/1/20,12,Types of product (manufacturing) costs,Direct Materials Can be physically and directly associated with manufacturing the finished product. Direct Labor The work of factory employees that can be physically and directly associated with conver
10、ting raw materials into finished goods. Indirect Manufacturing factory costs Not traceable to the product. known as Manufacturing Overhead costs or Factory Overhead costs Basically everything but direct materials and direct labor.,2-12,2020/1/20,13,2-13,2020/1/20,14,several factors that affect the c
11、lassification of costs as direct or indirect.P25 Materiality of the cost. The smaller the amount of the cost, the less likely that it is economically feasible to trace that cost to a particular cost object.,Direct and Indirect Costs,conts.,2020/1/20,15,Several factors that affect the classification
12、of costs as direct or indirect.P25 Ease of gathering the information. bar-code technology has made it possible to trace just about any material used in the manufacturing process Design of operations. A cost used exclusively for a specific cost object can be readily traced.,Direct and Indirect Costs,
13、conts.,2020/1/20,16,Learning objective 3Explain variable costs and fixed costs,2-16,2020/1/20,17, Cost behavior and Classifications,2-17,Cost behavior means how a cost will react to changes in the level of business activity. Total variable costs change when activity changes. Total fixed costs remain
14、 unchanged when activity changes.,2020/1/20,18,2020/1/20,19, Cost behavior,Variable costs are constant on a per-unit basis. If a product takes 5 pounds of materials each, it stays the same per unit regardless of whether one, ten, or a thousand units are produced. Fixed costs change inversely with th
15、e level of production. As more units are produced, the same fixed cost is spread over more and more units, reducing the cost per unit.,2-19,2020/1/20,20,FIXED COSTS AND VARIABLE COSTS ,CONTS.,Variable Costs ,P26,2020/1/20,21,Variable Costs,y = bx, where y = total cost, b = variable cost per unit and
16、 x = number of units. Costs that vary proportionately with changes in the cost driver.,2020/1/20,22,Total Variable Cost Example,Your total long distance telephone bill is based on how many minutes you talk.,Minutes Talked,Total Long Distance Telephone Bill,Minutes Talked,Per Minute Telephone Charge,
17、Variable Cost Per Unit Example,The cost per long distance minute talked is constant. For example, 5 cents per minute.,2020/1/20,23,FIXED COSTS AND VARIABLE COSTS ,CONTS.,Fixed Costs,P27,2020/1/20,24,Fixed Costs,y = a, where a is the y intercept and represents the cost level regardless of volume. Eg,
18、 depreciation, rates & executive salaries.,Fixed Cost Per Unit Example,Number of Local Calls,Monthly Basic Telephone Bill per Local Call,The average cost per local call decreases as more local calls are made.,2020/1/20,25,Cost behavior summarized,2-25,2020/1/20,26,FIXED COSTS AND VARIABLE COSTS ,CON
19、TS.,A cost driver is what causes a cost to be incurred. P28 Stated another way there is a cause-and-effect relationship between the level of activity of the cost driver and the cost incurred.,2020/1/20,27,FIXED COSTS AND VARIABLE COSTS ,CONTS.,Relevant range is the range of activity within which cos
20、ts behave as predicted. P28 Costs are fixed or variable only with respect to a specific activity or a given time period. Outside this level of activity, costs behave differently. This is not a concept that can be determined from a textbook. Observation of the actual costs must be done in order to de
21、termine this range.,2020/1/20,28,2-28,2020/1/20,29,Multiple Classification of Costs,Costs may be classified as: Direct / Indirect, and Variable / Fixed These multiple classifications give rise to important cost combinations: Direct & Variable Direct & Fixed Indirect & Variable Indirect & Fixed,2020/
22、1/20,30,2-30,2020/1/20,31,Learning objective 4Interpret unit costs cautiously,2-31,2020/1/20,32, UNIT COSTS AND TOTAL COSTS,Unit costs (also called average costs) are normally used in making decisions such as product mix and pricing. P30 However, managers should usually think in terms of total costs
23、 for most decisions. Fixed costs, when expressed on a unit basis can be misleading.,2020/1/20,33,33,UNIT COSTS AND TOTAL COSTS,CONTS.,Avoid using the higher unit cost when production level changes.,2020/1/20,34,Learning objective 5Distinguish among manufacturing companies, merchandising companies, a
24、nd service-sector companies,2-34,2020/1/20,35, DIFFERENT TYPES OF FIRMS,Manufacturing-sector companies purchase materials and components and convert them into finished products. p32 Merchandising-sector companies purchase and sell tangible products without changing their basis form. These companies
25、are known as retailers. Service-sector companies provide services (intangibles). However, there is frequently a tangible aspect to the service.,2020/1/20,36,Manufacturing,2-36,Manufacturing companies purchase materials and components and convert them into finished goods.,A manufacturing company must
26、 also develop, design, market, and distribute its products.,create and sell their own products,2020/1/20,37,Merchandising,2-37,Merchandising companies purchase and then sell tangible products without changing their basic form.,product resellers,2020/1/20,38,Service,2-38,Service companies provide ser
27、vices or intangible products to their customers.,Labor is the most significant cost category.,2020/1/20,39,Learning objective 6Describe the three categories of inventories commonly found in manufacturing companies,2-39,2020/1/20,40, Types of Inventory, Inventoriable Costs ,and Period Costs,Types of
28、Inventory Direct materials inventory Work-in-Process inventory Finished good inventory,2020/1/20,41,Types of inventories,2-41,Resources in stock and available for use,Products started but not yet completed. Often abbreviated as WIP,Products completed and ready for sale,2020/1/20,42,Types of inventor
29、ies,Merchandising companies purchase products in their completed form and do not make changes in their basic form. An inventory account for a merchandising company is called Merchandise Inventory, or simply Inventory.,2-42,2020/1/20,43,Learning objective 7Distinguish inventoriable costs from period
30、costs,2-43,2020/1/20,44,INVENTORIABLE COSTS AND PERIOD COSTS,Inventoriable costs are all costs of a product that are considered assets on the balance sheet.P33 These costs are direct materials, direct labor, and factory overhead. They become a part of the cost of the product and are assets until sol
31、d, when they become cost of goods sold. These are also known as product costs. These costs are capitalized as assets (inventory) until they are sold and transferred to Cost of Goods Sold.,2020/1/20,45,INVENTORIABLE COSTS AND PERIOD COSTS,CONTS.,Period costs are all costs on the income statement othe
32、r than cost of goods sold. P33 Period costs are treated as expenses of the period in which they are incurred. have no future value and are expensed as incurred,2020/1/20,46, Cost Flows,Three kinds condition,2020/1/20,47, Cost Flows,Period costs are all costs in the income statement other than cost o
33、f goods sold.,2020/1/20,48,48,Inventoriable Costs and Period Costs,conts.,2020/1/20,49,Illustration 1-4,Beginning Work In Process Inventory+ Total Current Manufacturing Costs=Total Cost Of Work In Process,Total Cost Of Work In Process-Ending Work In Process Inventory= Cost Of Goods Manufactured,Form
34、ula Of Cost Flows,2020/1/20,50,2020/1/20,51,2020/1/20,52,Cost Of Goods Manufactured,2-52,Calculates the cost of Direct Materials Used,Accumulates the three product costs for the current period,Adjusts the current period manufacturing costs to account for units actually completed,2020/1/20,53,Income
35、Statement,2-53,Figure carries forward from the Schedule of Cost of Goods Manufactured,Period Costs are expensed as incurred,2020/1/20,54,2020/1/20,55,2020/1/20,56,PRIME COSTS AND CONVERSION COSTS,Prime costs is a term used to describe all direct costs or direct materials plus direct labor. P38 Prime
36、 costs=$76000+$9000=$85000 Conversion costs is direct labor plus factory overhead. it is the cost of converting the materials into a finished product. Conversion costs=$20000+$9000=$29000,2020/1/20,57,Measuring cost requires judgment,Two typical cost Overtime premium Overtime premium of direct labor
37、 as overhead cost rather than direct cost for its random. If overtime not random, regard as direct cost. Idle time Overhead costs is wages paid for lack of orders, machine breakdowns, material shortages, poor scheduling and so on.,2020/1/20,58,Learning objective 8Explain why product costs are comput
38、ed in different ways for different purposes,2-58,2020/1/20,59,2-59,May use a “super” cost approach (comprehensive),Very specific definitions of cost for “cost plus profit” (mark-up) contracts,GAAP-driven product costs only, Different definitions of cost for different applications,2020/1/20,60,2-60,2
39、020/1/20,61,Learning objective 9Describe a framework for cost accounting and cost management,2-61,2020/1/20,62,THREE COMMON FEATURES OF COST ACCOUNTING AND COST MANAGEMENT,Calculating the cost of products, services, and other cost objects. Managers use this information in a variety of ways to formul
40、ate strategy and make various decisions.,2020/1/20,63,THREE COMMON FEATURES OF COST ACCOUNTING AND COST MANAGEMENT.CONTS.,Obtaining information for planning and control and for performance evaluation. Budgeting is the most commonly used tool for planning and control and forces managers to: Look ahea
41、d Translate strategy into plans Coordinate and communicate within the organization Provide a benchmark for evaluating performance,2020/1/20,64,Analyzing the relevant information for making decisions. Managers must understand which revenues to consider and which to ignore in the decision-making proce
42、ss. Management accounting can assist managers in determining which costs are relevant.,THREE COMMON FEATURES OF COST ACCOUNTING AND COST MANAGEMENT.CONTS.,2020/1/20,65,Question: Financial Statements for Manufacturing Companies,Chairs Plus is a small furniture manufacturing company. Beginning and end
43、ing work in process inventories were $20,000 and $18,000. Direct materials used were $70,000. Direct labour was $100,000. Manufacturing overhead incurred was $150,000. What is the cost of goods manufactured?,Beginning work in process $Direct labour $Direct materials $Mfg. Overhead $_ Ending work in
44、process $_Cost of goods manufactured $,2-65,18,000.,20,000,70,000,100,000.,150,000,322,000,2020/1/20,66,Financial Statements for Manufacturing Companies,Chairs Pluss, beginning finished goods inventory was $60,000 and its ending finished goods inventory was $55,000.,Beg. finished goods inventory $ C
45、ost of goods manufactured $_ Cost of goods available for sale $ Ending finished goods $_ Cost of goods sold $,How much is the cost of goods sold?,322,000,60,000,55,000,382,000,327,000,2020/1/20,67,Financial Statements for Manufacturing Companies,Chairs Plus, had sales of $627,000 for the period. How
46、 much is the gross profit? Sales $ Cost of goods sold $_ Gross profit $,327,000,627,000,300,000,2020/1/20,68,Financial Statements for Manufacturing Companies,Chairs Plus, had operating expenses as follows: Sales salaries and commissions $ 80,000 Delivery expense 10,000 Administrative expenses 60,000 Total $ 150,000 What is Chairs Pluss net profit?,Gross profit $ Operating expenses $_ Net profit $,300,000,150,000,150,000,2020/1/20,69,THE END!,
