Professional Documents
Culture Documents
Chap 017
Chap 017
McGraw-Hill/Irwin
Cost
A measurement, In monetary terms, Of the amount of resources used for some purpose.
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Cost Object
y Product, project, organizational unit, or other activity or purpose for which costs are measured. y Can be defined broadly or narrowly.
y E.g., an entire production run of jeans vs. one pair of jeans.
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Full Cost
y All the resources used for a cost object. y Includes:
y Direct production costs. y Indirect production costs. y Selling cost. y General and administrative cost.
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Direct Costs
y Costs specifically traced to (caused by) the cost object. y E.g., denim cloth used in jean manufacturing.
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Indirect Costs
y Costs associated with (or caused by) two or more cost objects jointly. y Not possible or feasible to trace directly to a single cost object. y Terms direct and indirect are only meaningful in context of a specific cost object (i.e., can change as cost object(s) change).
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Overhead Costs
y All other production costs. y Indirect production costs.
y y y y y y y y Indirect materials. Indirect labor. Utilities. Maintenance. Depreciation. Insurance. Taxes. Etc.
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Nonproduction Costs
y Also known as period costs. y Includes:
y Selling costs.
y Marketing (order-getting) costs. y Logistics (order-filling) costs.
y General and administrative costs. y Research and development costs. y Interest costs.
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Summary
Full cost:
y Production costs.
y Direct materials. y Direct labor. y Overhead.
y Nonproduction costs.
y Selling cost. y General and administrative cost. y Research and development costs. y Interest costs.
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Overhead Account
y Clearing account (i.e., temporary holding account). y Increased (debit) by incurrence of overhead costs (e.g., usage of indirect materials, incurrence of indirect labor costs, factory utilities cost, depreciation cost on factory assets, etc.). y Decreased (credit) when costs are applied to the product(s) being produced (i.e., placed into Work in Process Inventory).
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Nonmanufacturing Companies
Merchandising companies.
Since cost of goods sold is invoice cost, only requires simple system (relative to manufacturing company).
y Service organizations.
y Cost object is job (e.g., patient in a hospital, vehicle in a auto repair shop, client for an law office. y Job cost record kept for each job. y Cost record serves as work in process inventory account.
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Nonprofit Organizations
E.g., healthcare, educational, performing arts, government. Cost object is programs not products. Similar cost accounting practices to profit organizations.
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Abandonment costs.
Incurred after product is discontinued and doesn t produce significant revenues. Disposal of plant and equipment, severance costs, restoring polluted land.
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y Analysis of profitability.
y Entire business and parts of the business (e.g., product, product line, plant, division, sales territory, etc.).
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