Professional Documents
Culture Documents
CHAPTER
Basic
Management
Accounting
Concepts
2 -2
Objectives
1. Describe theAfter
cost assignment
studying thisprocess.
2. Define tangible
and intangible
chapter,
you shouldproducts and
explain why there
different
product cost
beare
able
to:
definitions.
3. Prepare income statements for manufacturing
and service organizations.
4. Outline the differences between functionalbased and activity-based management
accounting systems.
2 -3
CostI see
is the cash
cash-equivalent value
Its aordollar
sacrificed
for goods
measure
of the and services that is
expected
to bring
future what is
resources
used atocurrent orExactly
benefit atogiven
the organization.
meant by cost?
achieve
benefit.
2 -4
2 -5
2 -6
2 -7
2 -8
Direct
Tracing
Driver
Tracing
Allocation
Physical
Observation
Causal
Relationship
Assumed
Relationship
Cost Objects
2. Perishability
3. Inseparability
4. Heterogeneity
2 -9
Derived Properties
1.
2.
3.
4.
2 -10
No inventories.
Strong ethical code.
Intangibility
Price difficult to set.
Demand
for more accurate
No inventories.
Costs often accounted
Perishability
cost for
assignments.
Need
standards and
for by customer type.
consistent high quality.
Demand for and
measureProductivity
quality
Inseparability
ment and control
measurement
andof
quality to
maintain
control
must
be
Heterogeneity
consistency.
ongoing.
Total quality manageImpact on Management
Accounting ment critical.
2 -11
2 -12
Design
Service
Develop
Distribute
Produce
Market
2 -13
Operating Product
Costs
Traditional Product
Costs
Production
Production
Production
Marketing
Marketing
Customer
Service
Customer
Service
Value-Chain
Product Costs
Research and
Development
Pricing Decisions
Strategic Design Decisions
Product-Mix Decisions
Tactical Profitability
Strategic Profitability
Analysis
Analysis
External Financial
Reporting
2 -14
Wood in furniture
Alcohol in cologne
Denim in jeans
Braces for correcting teeth
Next
Page
Manufacturing Costs
Direct
Materials
Direct
Labor
The Product
Manufacturing
Overhead
2 -15
Click
Here
Next
Page
Direct Materials
Those materials that become
an integral part of the product and
that can be conveniently traced directly to it.
2 -16
Click
Here
2 -17
A chef in a restaurant
A surgical nurse attending
an open heart operation
Airline pilot
Next
Page
Direct Labor
2 -18
Click
Here
Next
Page
Manufacturing Overhead
2 -19
Click
Here
2 -20
Power
Property taxes
2 -21
Next
Page
Balance Sheet
Inventories
Material Purchases
Raw Materials
Direct Labor
Work in
Process
Manufacturing
Overhead
Selling and
Administrative
Finished
Goods
Period
Costs
Income
Statement
Expenses
Cost of
Goods
Sold
Selling and
Administrative
Expenses
2 -22
Click
Here
2 -23
Prime Cost :
Direct Materials Costs + Direct Labor Costs
Conversion Cost:
Direct Labor Costs + Overhead Costs
2 -24
External
Financial
Statements
Manufacturing Organization
Income Statement
For the Year Ended December 31, 2004
Sales
$2,800,000
$ 500,000
1,200,000
$1,700,000
300,000
Gross margin
1,400,000
$1,400,000
$ 600,000
300,000
900,000
$ 500,000
2 -25
2-20
$200,000
450,000
$650,000
50,000
$ 600,000
350,000
$122,500
177,500
50,000
37,500
12,500
50,000
450,000
$1,400,000
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2-21
2 -27
$1,400,000
200,000
$1,600,000
400,000
$1,200,000
Service Organization
Income Statement
For the Year Ended December 31, 2004
Sales
Less expenses:
Cost of services sold:
Beginning work in process
Service costs added:
Direct materials
Direct labor
Overhead
Total
Less: Ending work in process
Gross margin
Less operating expenses:
Selling expenses
Administrative expenses
Income before income taxes
2 -28
2-23
$300,000
$ 5,000
$ 40,000
80,000
100,000
220,000
$225,000
10,000
8,000
22,000
215,000
$ 85,000
30,000
$ 55,000
Functional-Based
Management Model
2 -29
Cost View
Resources
Operational View
Efficiency
Analysis
Functions
Products
Performance
Analysis
Activity-Based
Management Model
2 -30
Cost View
Resources
Process View
Driver
Analysis
Activities
Performance
Analysis
Why?
What?
How Well?
Products and
Customers
2 -31
Functional-Based
1. Unit-based drivers
2. Allocation-intensive
3. Narrow and rigid product
costing
4. Focus on managing cost
5. Sparse activity information
6. Maximization of individual
unit performance
7. Use of financial measures of
performance
Activity-Based
1. Unit- and nonunit-based
drivers
2. Tracing intensive
3. Broad, flexible product
costing
4. Focus on managing
activities
5. Detailed activity
information
6. Systematic performance
maximization
7. Use of both financial and
nonfinancial measures of
performance
2 -32
Chapter Two
The End
2 -33