Professional Documents
Culture Documents
Two
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Process of Management
Strategy Planning
Formulation
Control Directing
Decision
Making
1-3
What Do We Mean By a Cost?
A cost
is the measure of
resources given
up to achieve a
particular purpose.
1-4
Learning
Objective
2
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Product Costs, Period Costs and Expenses
1-6
Learning
Objective
3
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Cost Classifications on Financial
Statements – Income Statement
1-8
Cost Classifications on Financial
Statements – Balance Sheet
Merchandiser Manufacturer
Current Assets Current Assets
– Cash
Cash
– Receivables
Receivables
– Prepaid Expenses
Prepaid Expenses
– Merchandise
Inventories
Inventory Raw Materials
Work in Process
Finished Goods
1-9
Cost Classifications on Financial
Statements – Balance Sheet
Merchandiser Manufacturer
Current Assets Current Assets
– Cash
Those materials
Cash
waiting to be
Receivables
– Receivables processed.
– Prepaid Expenses
Prepaid Expenses
– Merchandise
Inventories
Inventory Raw Materials
Work in Process
Finished Goods
1-10
Cost Classifications on Financial
Statements – Balance Sheet
Merchandiser Manufacturer
Partially complete
Current Assets Current Assets
products – material to
– Cash which
Cash some labor
and/or overhead has
Receivables
– Receivables been added.
Prepaid Expenses
– Prepaid Expenses
Inventories
– Merchandise
Inventory Raw Materials
Work in Process
Finished Goods
1-11
Cost Classifications on Financial
Statements – Balance Sheet
Merchandiser Manufacturer
Current Assets Current Assets
– Cash
Cash
Completed products
Receivables
– Receivables awaiting sale.
Prepaid Expenses
– Prepaid Expenses
Inventories
– Merchandise
Inventory Raw Materials
Work in Process
Finished Goods
1-12
Learning
Objective
4
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Types of Production Processes
Type of Production Description of Example of
Process Process Manufacturer
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Manufacturing Costs
The
Product
1-16
Direct Material
1-17
Direct Labor
Example:
Example:
Wages
Wagespaid
paidto
toan
an
automobile
automobileassembly
assembly
worker.
worker.
1-18
Manufacturing Overhead
All other manufacturing costs
Indirect Indirect Other
Material Labor Costs
1-19
Manufacturing Overhead
All other manufacturing costs
Indirect Indirect Other
Material Labor Costs
1-20
Manufacturing Overhead
All other manufacturing costs
Indirect Indirect Other
Material Labor Costs
Examples: depreciation
on plant and equipment,
property taxes,
insurance, utilities,
overtime premium, and
unavoidable idle time.
1-21
Classifications of Costs in
Manufacturing Companies
Manufacturing costs are often
combined as follows:
Prime Conversion
Cost Cost
1-22
Manufacturing Cost Flows
Direct Material
Work in
Direct Labor Process
Inventory
Manufacturing
Overhead
1-23
Manufacturing Cost Flows
Direct Material
Work in
Direct Labor Process
Inventory
Manufacturing
Overhead
Finished
Goods
Inventory
1-24
Manufacturing Cost Flows
Direct Material
Work in
Direct Labor Process
Inventory
Manufacturing
Overhead
Finished Cost of
Goods Goods
Inventory Sold
1-25
Learning
Objective
6
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Exh.
Manufactured
1-27
Exh.
Manufactured
Raw-material inventory, January 1
Add: Purchases of raw materials
$ 6,000
134,000
Raw material available for use 140,000
Deduct: Raw material inventory, December 31 5,020
Raw material used $ 134,980
Comet Computer Corporation
Schedule of Cost of Goods Manufactured
1-28
Exh.
Manufactured
Include all direct labor
costs incurred during the
Cometcurrent period.
Computer Corporation
Schedule of Cost of Goods Manufactured
1-29
Schedule of Cost of Goods Manufactured Exh.
2-7
1-30
Exh.
Manufactured
Beginning work-in-
process inventory is
carried over from the
Comet Computer Corporation
prior period.
Schedule of Cost of Goods Manufactured
1-31
Exh.
Manufactured
Ending work-in-process inventory
contains the cost of unfinished
goods,
Comet and Corporation
Computer is reported in the current
assets
Schedule of Cost ofsection of the balance sheet.
Goods Manufactured
1-32
Exh.
Manufacturer
1-33
Exh.
1-34
Learning
Objective
7
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Identifying Cost Drivers
1-36
Learning
Objective
8
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Cost Classifications
1-38
Cost Classifications
1-39
Total Variable Cost Example
Your total long distance telephone bill is
based on how many minutes you talk.
Total Long Distance
Telephone Bill
Minutes Talked
1-40
Variable Cost Per Unit Example
The cost per long distance minute talked is
constant. For example, 5 cents per minute.
Telephone Charge
Per Minute
Minutes Talked
1-41
Total Fixed Cost Example
Your monthly basic telephone bill probably
does not change when you make more local
calls.
Telephone Bill
Monthly Basic
1-42
Fixed Cost Per Unit Example
The average cost per local call decreases as
more local calls are made.
1-44
Learning
Objective
9
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Direct and Indirect Costs
Direct costs Indirect costs
• Costs that can be • Costs that must be
easily and allocated in order to
conveniently traced to be assigned to a
a product or product or
department. department.
• Example: cost of • Example: cost of
paint in the paint national advertising
department of an for an airline is
automobile assembly indirect to a particular
plant. flight.
1-46
Direct and Indirect Costs
• A cost can be direct to the department,
but indirect to units of product produced
in the department.
– Example: department manager’s salary.
1-47
Controllable and
Uncontrollable Costs
A cost that can be significantly influenced
by a manager is a controllable cost.
Cost item Manager Classificaton
Cost of food used Restaurant Controllable
in a restaurant manager
Cost of national Restaurant Uncontrollable
advertising by a manager
restaurant chain
1-48
Learning
Objective
10
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Opportunity Cost
1-50
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.
– Example: You bought an automobile that cost
$12,000 two years ago. The $12,000 cost is
sunk because whether you drive it, park it, trade
it, or sell it, you cannot change the $12,000
cost.
1-51
Differential Costs
Costs that differ between alternatives.
1-52
Marginal Costs and Average
Costs
1-53
Costs and Benefits of Information
Costs Benefits
1-54