Professional Documents
Culture Documents
11 CH 02
11 CH 02
Chapter 2
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-1
Learning Objective 1
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-2
Cost and Cost Terminology
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-3
Cost and Cost Terminology
Cost Object
Cost
Accumulation Cost Object
Cost Object
Cost Tracing
Assignment
Allocating
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-4
Learning Objective 2
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-5
Direct and Indirect Costs
COST
COSTOBJECT
OBJECT
Direct Costs
Example: Paper on which
Example:
Example:Sports
Sports
Sports Illustrated magazine
Illustrated
Illustratedmagazine
magazine
is printed
Indirect Costs
Example: Lease cost for
Time-Warner building
housing the senior editors
of its magazine
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-6
Direct and Indirect Costs
Example
Direct Costs:
Maintenance Department $40,000
Personnel Department $20,600
Assembly Department $75,000
Finishing Department $55,000
Assume that Maintenance Department costs are
allocated equally among the production departments.
How much is allocated to each department?
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-7
Direct and Indirect Costs
Example
Maintenance
$40,000
Assembly Finishing
Direct Costs Direct Costs
$75,000 $55,000
$20,000 $20,000
Allocated
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2-8
Learning Objective 3
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Cost Behavior Patterns Example
80000
60000
40000 $94,500
20000
0
0 1000 2000 3000 4000 5000 6000
Volume
Variable Fixed
Indirect
100000 $94,500
50000
0
0 500 1000 1500
Volume
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 20
Use Unit Costs Cautiously
Distinguish among
manufacturing companies,
merchandising companies, and
service-sector companies.
Manufacturing
Manufacturing companies
companies
purchase
purchase materials
materials and
and components
components andand
convert
convert them
them into
into finished
finished goods.
goods.
A
A manufacturing
manufacturing company
company must
must also
also develop,
develop,
design,
design, market,
market, and
and distribute
distribute its
its products.
products.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 26
Merchandising
Merchandising
Merchandising companies
companies
purchase
purchase and
and then
then sell
sell tangible
tangible products
products
without
without changing
changing their
their basic
basic form.
form.
Service
Service companies
companies
provide
provide services
services or or intangible
intangible
products
products to
to their
their customers.
customers.
Labor
Labor isis the
the most
most significant
significant cost
cost category.
category.
Differentiate between
inventoriable costs
and period costs.
Manufacturing-sector companies
typically have one or more of the
following three types of inventories:
1. Direct materials inventory
2. Work in process inventory (work
in progress)
3. Finished goods inventory
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Types of Inventory
Work in Process
Beg. Balance 30,000 495,000
Direct mtls. used 200,000
Direct labor 105,500
Indirect mfg. costs 194,500
Ending Balance 35,000
Indirect Indirect
Labor Materials Other
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 46
Conversion Costs
Manufacturing overhead