2 -1

CHAPTER
Basic
Management
Accounting
Concepts
 2 -2

Cost
Cost issee…
is the
II see… the cash
It’s aor
It’s
cash cash-equivalent
cash-equivalent value
aordollar
dollar value
sacrificed for
for goods
measure
sacrificed
measure of theand
of the
goods and services
services that
that isis
expected
resources
expected
resourcesto
to bring
usedato
used
bring atocurrent
current or future
orExactly
future what
Exactly what isis
benefit
benefitato
achieve
achieve the
the organization.
atogiven
given meant
meant by
organization. by “cost”?
“cost”?
benefit.
benefit.
 2 -3

A cost object is any item such as products,

customers, departments, projects, activities, and
so on, for which costs are measured and assigned.
Example:
Example A bicycle is a cost object when you are
determining the cost to produce a bicycle.

An activity is a basic unit of work performed

within an organization.
Example: Setting up equipment, moving materials,
maintaining equipment, designing products,
etc.
 2 -4

Traceability is the ability to assign a cost to a

cost object in an economically feasible way by
means of a cause-and-effect relationship.
Direct costs are those costs that can be easily
and accurately traced to a cost object.

Example: If a hospital is the cost object,

the cost of heating and
cooling the hospital is
a direct cost.
 2 -5

Indirect costs are those costs that cannot be

easily and accurately traced to a cost object.
Example: The salary of a plant manager, where
departments within the plant are defined
as the cost objects.
 2 -6

Direct materials are those materials that are directly

traceable to the goods or services being produced.
Steel in an automobile
Wood in furniture
Alcohol in cologne
Denim in jeans
Braces for correcting teeth
 2 -7

Direct labor is the labor that is directly traceable to

the goods or services being produced.
Workers on an assembly
line at Chrysler
A chef in a restaurant
A surgical nurse attending
an open heart operation
Airline pilot
 2 -8

Overhead are all other production costs.

 Depreciation on building
and equipment
 Maintenance
 Supplies
 Supervision
 Power
 Property taxes
 2 -9

Noninventoriable
Noninventoriable (period)
(period) costs
costs
are
are expensed
expensed inin the
the period
period in
in
which
which they
they are
are incurred.
incurred.

 Salaries and commissions of

sales personnel (marketing)
 Advertising (marketing)
 Legal fees (administrative)
 Printing the annual report
(administrative)
 2 -10

Prime Cost :
Direct Materials Costs + Direct Labor Costs

Conversion Cost:
Direct Labor Costs + Overhead Costs
 2 -11

External
Financial
Statements
 Manufacturing Organization 2 -12
2-20

Income Statement
For the Year Ended December 31, 2004
Sales $2,800,000
Less cost of goods sold:
Beginning finished goods inventory $ 500,000
Add: Cost of goods manufactured 1,200,000
Cost of goods available for sale $1,700,000
Less: Ending finished goods inventory 300,000 1,400,000
Gross margin $1,400,000
Less operating expenses:
Selling expenses $ 600,000
Administrative expenses 300,000 900,000
Income before taxes $ 500,000
 Statement of Cost of Goods Manufactured 2 -13
2-21

For the Year Ended December 31, 2004

Direct materials:
Beginning inventory $200,000
Add: Purchases 450,000
Materials available $650,000
Less: Ending inventory 50,000
Direct materials used $ 600,000
Direct labor 350,000
Manufacturing overhead:
Indirect labor $122,500
Depreciation 177,500
Rent 50,000
Utilities 37,500
Property taxes 12,500
Maintenance 50,000 450,000
Total manufacturing costs added $1,400,000
continued
continuedon
onnext
nextslide
slide
 2 -14

Total manufacturing costs added $1,400,000

Add: Beginning work in process 200,000
Total manufacturing costs $1,600,000
Less: Ending work in process 400,000
Cost of goods manufactured $1,200,000

Work in process consists of all

partially completed units found in
production at a given point in time.
 Service Organization 2 -15
2-23

Income Statement
For the Year Ended December 31, 2004
Sales $300,000
Less expenses:
Cost of services sold:
Beginning work in process $ 5,000
Service costs added:
Direct materials $ 40,000
Direct labor 80,000
Overhead 100,000 220,000
Total $225,000
Less: Ending work in process 10,000 215,000
Gross margin $ 85,000
Less operating expenses:
Selling expenses $ 8,000
Administrative expenses 22,000 30,000
Income before income taxes $ 55,000
 2 -16

Chapter Two

The
The End
End
 2 -17

Tugas
2-1; 2-2; 2-8; 2-9;
2-11; 2-21; 2-22;
2-24