Professional Documents
Culture Documents
16
Management Accounting:
A Business Partner
McGraw-Hill/Irwin
Accounting information supports planning and decision-making. Accounting reports provide a means of monitoring, evaluating, and rewarding performance.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Direct Materials
Raw materials & component parts that become an integral part of finished products.
Can be traced directly and conveniently to products.
If materials cannot be traced directly to products, the materials are considered indirect and are part of manufacturing overhead.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Direct Labor
Includes the payroll cost of direct workers.
Wage rate
McGraw-Hill/Irwin
Direct Labor
Includes the payroll cost of direct workers.
The cost of employees who do not work directly on the goods is considered indirect labor and is part of manufacturing overhead.
McGraw-Hill/Irwin
Manufacturing Overhead
All manufacturing costs other than direct materials and direct labor.
Includes:
Indirect materials. Indirect labor. Machinery and equipment costs. Cost of regulatory compliance.
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Manufacturing Overhead
All manufacturing costs other than direct materials and direct labor.
Includes:
Indirect materials. Indirect labor. Machinery and equipment costs. Cost of regulatory compliance.
McGraw-Hill/Irwin
Manufacturing Overhead
The cost to produce a unit of product includes: Direct material Direct labor Manufacturing overhead
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
Manufacturing Overhead
The cost to produce a unit of product includes: Direct material Direct labor Manufacturing overhead
McGraw-Hill/Irwin
Manufacturing overhead must be mathematically allocated to each unit of product using a predetermined overhead application rate. (This will be discussed later in this chapter.)
The McGraw-Hill Companies, Inc., 2002
as incurred
as incurred
Factory
Direct labor & Manufacturing overhead Finished goods Warehouse Finished goods
Goods sold
McGraw-Hill/Irwin
Materials Inventory
$$$ $$$
How much direct material was placed into production during 2002?
McGraw-Hill/Irwin
The McGraw-Hill Companies, Inc., 2002
+ = =
? ?
$ 78,000
McGraw-Hill/Irwin
+ = =
78,000
McGraw-Hill/Irwin
$ 1,590,000
McGraw-Hill/Irwin
+ =
(1,480,000) $ 242,000
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
McGraw-Hill/Irwin
McGraw-Hill/Irwin
CONQUEST, INC. Schedule of the Cost of Finished Goods Manufactured For the Year Ended December 31, 2002 Work in process inventory, beg. $ Manufacturing cost assigned to production: Direct Materials $ 150,000 Direct Labor 300,000 Manufacturing overhead 360,000 Total manufacturing costs Total cost of all work in process during the year Less: Work in process inventory, end of year Cost of finished goods manufactured $
McGraw-Hill/Irwin
30,000
Beginning finished goods inventory Add: Cost of finished goods manufactured during the year CONQUEST, INC. Cost of finished Schedule of the Cost of Finished Goods Manufacturedgoods For the Year Ended December 31, 2001 available for sale Work in process inventory, beg. $ 30,000 Less: Ending finished goods Manufacturing cost assigned to production: inventory Direct Materials $ 150,000 Cost of Goods Sold Direct Labor 300,000
Manufacturing overhead 360,000 Total manufacturing costs Total cost of all work in process during the year $ Less: Work in process inventory, end of year Cost of finished goods manufactured $ 810,000 840,000 (40,000) 800,000
The cost of goods completed during the period is used to compute COGS for the period.
The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
CONQUEST, INC. Income Statement For the Year Ended December 31, 2002 Sales Cost of Goods Sold Gross profit on sales Operating expenses Income from operations Less: Interest expense Income before income taxes Income tax expense Net income $ 1,300,000 782,000 $ 518,000 400,000 $ 118,000 18,000 $ $ 100,000 30,000 70,000
McGraw-Hill/Irwin
End of Chapter 16
This is a great job, but the overhead is killing my profit margin!
McGraw-Hill/Irwin