Professional Documents
Culture Documents
Chap 002
Chap 002
Basic Cost
Management Concepts
and Accounting for Mass
Customization Operations
McGraw-Hill/Irwin
Process of Management
Strategy
Formulation
Planning
Directing
Control
Decision
Making
Learning Objective 01
2-2
2-3
Merchandiser
Current Assets
Cash
Receivables
Prepaid Expenses
Merchandise
Inventory
Current Assets
Cash
Receivables
Prepaid Expenses
Inventories
Raw Materials
Work in Process
Finished Goods
2-4
Description of
Example of
Process
Process
Manufacturer
Job Shop
Low volume
Disney
Little standardization
Unique products
Batch
Multiple products
Caterpillar
Low volume
Assembly Line
Ford
Higher volume
Mass Customization
High volume
Dell
Continuous Flow
High volume
Highly standardized commodity products
Exxon
2-5
Manufacturing Costs
Direct
Material
Direct
Labor
Manufacturing
Overhead
The
Product
2-6
Classifications of Costs in
Manufacturing Companies
Manufacturing costs are often
combined as follows:
Direct
Material
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
2-7
Work in
Process
Inventory
Manufacturing
Overhead
Finished
Goods
Inventory
Cost of
Goods
Sold
2-8
6,000
134,000
140,000
5,020
$ 134,980
2-9
10,000
Indirect labor
40,000
Depreciation on factory
90,000
Depreciation on equipment
70,000
Utilities
15,000
Insurance
Total manufacturing overhead
5,000
$ 230,000
Beginning work-in-process
inventory is carried over from
the prior period.
Ending work-in-process inventory
contains the cost of unfinished goods,
and is reported in the current assets
section of the balance sheet.
2-10
700,000
415,010
Gross margin
Selling and administrative expenses
284,990
174,490
110,500
30,000
Net income
80,500
2-11
200
415,000
415,200
190
Income Statement
$ 415,010
For the Year Ended December 31, 20X2
Sales revenue
Less: Cost of goods sold
700,000
415,010
Gross margin
Selling and administrative expenses
284,990
174,490
110,500
30,000
Net income
80,500
2-12
Cost Classifications
Summary of Variable and Fixed Cost Behavior
Cost
In Total
Per Unit
Variable
Fixed
2-14
Various Costs
Direct costs: Costs that can be easily and conveniently traced to a
product or department.
Indirect costs: Costs that must be allocated in order to be assigned to a
product or department.
Controllable and Uncontrollable Costs: A cost that can be significantly
influenced by a manager is a controllable cost.
Opportunity Costs: The potential benefit that is given up when one
alternative is selected over another.
Sunk Costs: All costs incurred in the past that cannot be changed by any
decision made now or in the future are sunk costs. Sunk costs should
not be considered in decisions.
Differential Costs: Costs that differ between alternatives.
Marginal Cost: The extra cost incurred to produce one additional unit.
Average Cost: The total cost to produce a quantity divided by the
quantity produced.
2-15