Professional Documents
Culture Documents
To
Cost Accounting
Cost and Cost
Terminology
Cost is a resource sacrificed or forgone to
achieve
a specific objective .
An actual cost is the cost incurred ( a
historical cost )
as distinguished from budgeted costs
COST
COST
Direct OBJECT
Costs OBJECT
Example : Paper on
which Example
Example::
Sports Illustrated Sports
Sports
magazine Indirect Illustrated
Illustrated
is printed mmagazine
agazine
Costs
Example : Lease cost
for
Time - Warner
building
housing the senior
editors
of its magazine
Direct and Indirect Costs
Example
Direct Costs :
Maintenance Department $40 , 000
Personnel Department $20 , 600
Assembly Department $75 , 000
Finishing Department $55 , 000
Maintenance
$40 , 000
Assembly Finishing
Direct Direct
Costs Costs
$75 , 000 $55 , 000
Direct
Variable Fixed
Indirect
Interpret unit costs
cautiously.
cautiously
Total Costs and Unit
Costs Example
What is the unit cost ( leasing and
handlebars )
when Bicycles assembles 1 , 000 bicycles?
Manufacturing
Manufacturing companies
companies
purchase
purchase materials
materials and
and
components
components and
and
convert
convert them
them into
into finished
finished
goods
goods..
AA manufacturing
manufacturing company
company must
must also
also develop
develop,,
design
design,, market
market,, and
and distribute
distribute its
its products
products..
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..
Merchandising
Service
Service companies
companies
provide
provide services
services oror intangible
intangible
products
products to
to their
their customers
customers..
Labor
Labor is
is the
the most
most significant
significant cost
cost category
category..
Differentiate between
inventor able costs
and period costs.
costs
Types of Inventory
Manufacturing - sector companies
typically have one or more of the
following three types of
inventories :
Direct manufacturing
labor costs
Indirect manufacturing
costs
Describe the three
categories of
inventories commonly
found
in manufacturing
companies.
companies
Inventoriable Costs
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
Flow of Costs Example
Finished Goods
10 , 000
Work in Process 490 , 000
495 , 000
495 , 000 15 , 000
Cost of Goods
Sold
490 , 000
Manufacturing Company
INCOME STATEMENT
BALANCE SHEET
Inventoriable
Costs Revenues
when
Materials Finished sales
Goods occur Cost of
Inventory Inventory Goods Sold
Equals Gross Margin
deduct
Work in Period
Process Costs
Inventory
Equals Operating Income
Merchandising Company
Period
Costs
Equals Operating Income
Prime Costs
Indire Indire
ct ct Other
Labor Materi
als
Conversion Costs
What are the conversion costs for
Bicycles by the Sea?
Direct labor
$105 , 500
+ Indirect manufacturing costs 194 , 500
= $300 , 000
Measuring Costs
Requires Judgment
Manufacturing labor - cost classifications
vary among companies .
Manufacturing overhead
Measuring Costs
Requires Judgment
Manufacturing overhead