Housekeeping

Dont sit on back rows:

9:00am section 01 last two rows
10:00am section 02 last two rows
12 noon section 03 last two rows
1:00pm section 04 use rows 2 & 3 only
Chapter 2 HW is due Saturday, Jan 30th @ noon
Chapter 2 Quiz is due Saturday, Jan 30th @ noon
Include course & section # in all emails on subject
line. For example: 2020.003 ..

Accounting Lab Hours 2016

MONDAY Spring(revised)
8 am - 10 pm
TUESDAY
WEDNESDAY
THURSDAY
FRIDAY
SATURDAY

8 am 8 am 8 am 10pm
8 am 9 am -

5 pm
10 pm
1 pm; 5
10 pm
6 pm

Accounting Lab
Appointments
http://www.cob.unt.edu/lab/tu
tor.php

Copyright 2015 Pearson

Education, Inc.

Three types of companies

Service
Provide a service only
NO inventory

Merchandisers
Resell products purchased from suppliers
ONE inventory account

Manufacturers
Use labor and other company resources to convert raw
material into finished products
THREE inventory accounts

Cost Assignments: Trace &

Allocate
Pg 53
tim
Es
e
at
Pg 53

Flow of Inventory Through a Manufacturing System

Raw
Materi
als

Storero
om

Work in
Process

Finish
ed
Goods

Production
department

Ready
for sale

Cost
of
Goods
Sold
Sold
Pg 48

Copyright 2015 Pearson Education,

Inc.

Inventoriable Product Costs Manufacturer

Tota
Direct materials
l Co
Direct Costs
st
Direct labor
Manufacturing overhead(MOH)
Indirect Costs
Indirect costs related to manufacturing
that are not direct materials or direct labor
Indirect materials
Indirect labor
Other indirect manufacturing costs
Pg 57

Prime and Conversion Costs

Tota
Direct materials
l Co
Direct Costs
st
Direct labor
Manufacturing overhead(MOH)
Indirect Costs
Pg 59

Simplebut one of the building blocks

Pg 85

Direct

Indirect

Pg 85

$ 260
$ 140
$ 80
$ 45

$ 20

$ 660
$ 30
$ 130
$ 40

$ 225
$ 70
$ 195

$1,400
$1,660 $ 700 $ 45 $ 160 $ 210 $ 520

E2-21

$1,660 $ 700 $ 45 $ 160 $ 210 $ 520

(2) Total mfg overhead =

(3) Total inventoriable
product cost =

IM + IL + Other MOH
$ 45 + $160 + $210 = $ 415
( Direct + Indirect )
DM + DL + Total MOH
$1,660 + $700 + $415 = $2,775

(4) Total Prime Costs =

DM + DL
$1,660 + $700 = $2,360

(5) Conversion Costs =

DL + MOH
$700 + $415 = $1,115

(6) Period Costs

$520

Income StatementManufacturer
Pg 86

Sales
+ Rev
Cost of goods sold
Gross profit
Operating expenses
Operating income

- CofGS
- Per
= OpI

Rev CofGS Per = OpI

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16

Flow of Inventory Through a Manufacturing System

Raw
Materi
als

Storero
om

Work in
Process

Finish
ed
Goods

Production
department

Ready
for sale

Cost
of
Goods
Sold
Sold
Pg 48

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Inc.

17

Inventory out-flow
Calculation
Beg Inv + InvIncr = Total Inv = InvOut +
End Inv

Beg Inv + InvIncr = InvOut + End Inv

subtract - End Inv =
- End Inv

from

both sides

since .
+EndInv
EndInv = zero
BegInv + InvIncr EndInv = InvOut + - 0
BegInv + InvIncr EndInv = InvOut

Cost of Goods Sold

Schedule & Formula

Pg 67

+ Beginning finished goods inventory

+
BegFG
+ Cost of goods manufactured
+ CofGM
= Cost of goods available for sale
Ending finished goods inventory
- EndFG
= Cost of goods sold
= CofGS
BegFG + CofGM EndFG = CofGS

Copyright 2015 Pearson Education, Inc.

20

Flow of Inventory Through a Manufacturing System

Raw
Materi
als

Storero
om

Work in
Process
Production
department

Cost
of
Goods
Sold

Finish
ed
Goods

C
of

Ready
for sale

So
ld Sold
Pg 48

Copyright 2015 Pearson Education,

Inc.

21

Cost of Goods Sold

Schedule & Formula

Pg 67

+ Beginning finished goods inventory

+
BegFG
+ Cost of goods manufactured
+ CofGM
= Cost of goods available for sale
Ending finished goods inventory
- EndFG
= Cost of goods sold
= CofGS

BegFG + CofGM EndFG = CofGS

Copyright 2015 Pearson Education, Inc.

22

Cost of Goods Manufactured

Schedule & Formula Pg 67
+

Beginning work in process inventory

+ BegWIP
+ Direct materials used
+ DMused
+ Direct labor
+ DL
+ Manufacturing overhead
+ MOH
Indirect materials
Indirect labor
Other indirect manufacturing costs

= Total manufacturing costs to account for

Ending work in process inventory
- EndWIP
= Cost of goods manufactured
= CofGM
BegWIP + (DMused + DL + MOH) EndWIP = CofGM

Copyright 2015 Pearson Education, Inc.

23

Flow of Inventory Through a Manufacturing System

Raw
Materi
als

Storero
om

Work in
Process

Finish
ed
Goods

C
of
G Ready
Production
M
ffor
g sale
department

Cost
of
Goods
Sold
Sold
Pg 48

Copyright 2015 Pearson Education,

Inc.

24

Cost of Goods Manufactured

Schedule & Formula Pg 67

Beginning work in process inventory

+
BegWIP
+ Direct materials used
+ DMused
+ Direct labor
+ DL
+ Manufacturing overhead
+ MOH

Indirect materials
Indirect labor
Other indirect manufacturing costs

?
?
?

= Total manufacturing costs to account for

Ending work in process inventory
EndWIP
= Cost of goods manufactured
= CofGM
BegWIP + (DMused + DL + MOH) EndWIP = CofGM

Direct Materials Used

Schedule & Formula

Pg 66

+ Beginning raw materials inventory

BegRM
+ Purchases of raw materials
+ RMincr
+ Freight in + other Purch costs +
RMincr
= Materials available for use
Ending raw materials inventory
+ EndRM
= Direct materials used
=
Copyright 2015 Pearson Education, Inc.

26

Flow of Inventory Through a Manufacturing System

Raw
Materi
als

Work in
Process

D
M
us Production
ed
Storero
department
om

Finish
ed
Goods

Ready
for sale

Cost
of
Goods
Sold
Sold
Pg 48

Copyright 2015 Pearson Education,

Inc.

27

Direct Materials used

Cost of Goods Mfg

Cost of Goods Sold

Income Statement

DM Used
BegInv + InvIncr EndInv = CofGMfg
CofGS

Copyright 2015 Pearson

Education, Inc.

28

Flow of Inventory Through a Manufacturing System

Direct Materials used
Beg
+ Incr
- Ending
= DMused

Cost of Goods Mfg

Raw
Materi
als

Storero
om

Cost of Goods Sold

Beg
+ Incr
Beg
- Ending Income Statement
+ Incr
= CofGM
- Ending
= CofGS

Work in
Process

Finish
ed
Goods

Production
department

Ready
for sale

Cost
of
Goods
Sold
Sold

Cost Flows Visualized (Exhibit 2-7)

S2-12

Pg 82

Direct Materials used

Which
schedule?

Cost of Goods Mfg

Cost of Goods Sold

Income Statement

Direct Materials Used

Schedule

Pg 67

+ Beginning raw materials inventory

BegRM
+ Purchases of raw materials
+ RMincr
+ Freight in + other purch costs +
RMincr
= Materials available for use
Ending raw materials inventory
+ EndRM
= Direct materials used
=
Copyright 2015 Pearson Education, Inc.

32

S2-12

Pg 82

S2-12
Thomas Bikes
Computation of Direct Materials Used

Direct materials used:

Beginning raw materials inventory
Purchases of direct materials
Import duties
Freight-in

$16,400
1,300
200

17,900

Direct materials available for use

22,000

Ending raw materials inventory

(1,900 )

Direct materials used

2015 Fall

$ 4,100

$20,100

Pg 86

E2-25A

Which formula do we need to use?

Direct Materials used

BegInv + InvIncr EndInv

Cost of Goods Mfg

BegWIP + (DMused + DL + MOH) EndWIP = CofGM

Cost of Goods Sold

Income Statement

Direct Materials Used

E2-25(a)

Pg 86

Computation of Direct Materials Used

Direct materials used:
Beginning raw materials inventory
Purchases of direct materials
Import duties
Freight-in

$ 27,000
$79,000
-0- 0-

79,000

Direct materials available for use

106,000

Ending raw materials inventory

(31,000 )

Direct materials used

$ 75,000

Beg + Incr Ending .. of ??

http://www.wavsource.com/snds_2015-08-23_2824562050165472/movies/wizard/melting2.wav

E2-25(A), Cost of Goods Manufactured

Raw materials used

$75,000

Beg + Incr Ending .. of ??

Beginning WIP Inventory

+ Mfg costs incurred:
DM Used (..see DM used sched)
DL
MOH
Total mfg costs to account for
- Ending WIP Inventory
Cost of Goods Mfg
Total MOH:
Indirect Labor
Insurance
Depreciation
Repairs & Maint
Total MOH

Pg 86

43,000
75,000
83,000
70,800
$ 271,800
( 28,000)
$ 243,800
$

(Other MOH)
(Other MOH)
(Other MOH)
$

46,000
8,000
12,700
4,100
70,800

E2-25(b), Cost of Goods Sold

Pg 86

Raw materials used

$ 75,000

Cost of Goods Mfg

$ 243,800

Beg + Incr Ending .. of ??

Beginning FG Inventory
+ Cost of Goods Mfg (see CofGM schedule)
Total Goods available for Sale
- Ending FG Inventory
Cost of Goods Sold

16,000
243,800
259,800
( 29,000)
$ 230,800

Direct Materials used

Cost of Goods Mfg

Cost of Goods Sold

Income Statement

Copyright 2015 Pearson

Education, Inc.

39

Direct Material Used (DM Used)

BegRM + RMincr = RMavail EndRM = DMused
BegRM + RMincr EndRM = DMused
Cost of Goods Manufactured (CofGM)
BegWIP + WIPincr = TotMfg EndWIP = CofGM
WIPincr = DMused + DL + MOH

BegWIP + (DMused + DL + MOH) EndWIP = CofGM

MOH = IM + IL + OthrMOH
BegWIP + (DMused + DL + IM + IL + OthrMOH) EndWIP = CofGM

Cost of Goods Sold (CofGS)

BegFG + CofGM = FGAvail EndFG = CofGS
BegFG + CofGM EndFG = CofGS
Operating Income (OpI)
Rev CofGS = GP Per = OpI
Rev CofGS Per = OpI

Using the formulas to solve a problem

BegRM + RMincr EndRM = DMused
BegWIP + (DMused + DL + IM + IL + OthrMOH) EndWIP = CofGMfg
BegFG + CofGMfg EndFG = CofGS
Sales CofGS Per = OpI

Use DMused formula to solve for Ending Raw Material inventory(EndRM)

BegRM + RMincr EndRM = DMused
add EndRM to both sides

+ EndRM = + EndRM since EndRM + EndRM = 0

BegRM + RMincr = DMused + EndRM .. subtract DMused from both sides

- DMused = - DMused

BegRM + RMincr DMused = EndRM

Pg 87

E2-27
Pg 87

(a) Cost of Goods Sold

Direct Materials used

= BegRM + (RMPurch+FrtIn+Duties)-EndRM
Cost of Goods Mfg = BegWIP+DMused+DL+(IM+IL+OMOH)-EndWIP
Cost of Goods Sold = BegFG + CofGMfg - EndFG
Income Statement
Rev CofGS = GP Per = OpI
Cost of Goods Sold
Gross Profit
= Revenue
CofGS
$ 12,100
= $ 27,700
move CofGS to other side of = sign as a positive amount (=s added to =s)
$ 27,700
=
$ 12,100
+ CofGS
move $12,100 to other side of = sign as a negative amount (=s subtracted from =s)
$ 12,100
CofGS
= $ 27,700
Cost of Goods Sold
= $ 15,600

E2-27
Pg 87

(b) Beginning Raw Materials

Cost of Goods Sold

$ 15,600

Direct Materials used

= BegRM + (RMPurch+FrtIn+Duties)-EndRM
Cost of Goods Mfg = BegWIP+DMused+DL+(IM+IL+OMOH)-EndWIP
Cost of Goods Sold = BegFG + CofGMfg - EndFG
Income Statement
OpI = Rev CofGS = GP - Per

$ 8,600 = BegRM + $ 9,500 + 0 + 0 - $ 3,600

Move $9,500 to other side of = sign as a negative
Move $3,600 to other side of = sign as a positive
$8,600 + $3,600 - $9,500 = BegRM
$ 2,700 = BegRM

E2-27
Pg 87

(c) Ending Finished Goods Inventory

Cost of Goods Sold

$ 15,600

Direct Materials used

= BegRM + (RMPurch+FrtIn+Duties)-EndRM
Cost of Goods Mfg = BegWIP+DMused+DL+(IM+IL+OMOH)-EndWIP
Cost of Goods Sold = BegFG + CofGMfg - EndFG
Income Statement
OpI = Rev CofGS = GP - Per

Subsitute the CofGMfg formula in the CofGS formula

CofGS = BegFG + (BegWIP+DMused+DL+MOH-EndWIP) EndFG
$ 15,600 = 4,500 + ( 0 + $8,600 + $3,400 + $6,100 - $1,100 ) - EndFG
Move $15,600 to other side of = sign as a negative
Move EndFG to other side of = sign as a positive
EndFG = $4,500 + ( 0 + $8,600 + $ 3,400 + $ 6,100 - $ 1,100 ) - $ 15,600
EndFG = $ 4,500 + $ 17,000 - $ 15,600
EndFG = $ 5,900

Cost Behavior
Cost behaviorhow costs change as volume changes.

Variable
costs
Fixed
costs

Change in total cost in

direct proportion to
changes in volume
Stay constant in total cost
over a wide range of
activity levels

Copyright 2015 Pearson Education, Inc.

46

Cost Behavior
Summarized

Total
Total Dollars
Dollars

Variable Costs
Variable
Costs
Fixed
Costs
Fixed
Costs

Cost Per
per Unit
Cost

Change
in
Change in
Unchanged in
proportion
with
proportion with
relation to
output
output
More output = More
output
More output = More cost
cost

Unchanged in
relation toin
Unchanged
relation
to output
output
2-

Change
Change
inversely with
inversely
with
output
output
More output
output == lower
More
lower
cost
cost per unit
per
unit
49

Controllable vs Uncontrollable
Relevant vs Irrelevant Costs
Controllabl
e
Uncontroll
able

Management can influence or

change cost
Management cannot change or
influence cost in the short run

Releva
nt

Differential costs, which are costs that

differ between alternatives

Irreleva
nt

Costs that do not differ between

alternatives
or
Sunk costs costs incurred in the past
Copyright 2015 Pearson Education, Inc.
50
that cannot
be changed

Pg 82

S2-16

Cost incurred
a. Cost of coffee used at a Starbucks store

Variable or Fixed

Variable

e. Shipping costs for Amazon.com

Variable
Variable
Variable
Variable

f. Monthly rent for a nail salon

Fixed

b. Hourly wages paid to sales clerks at Best Buy

c. Monthly flower costs for a florist
d. Cost of fuel used for a trucking company

g. Sales commissions at a car dealership

h. Monthly insurance costs for the home office of Google
i. Monthly depreciation of equipment for a customer service office

Variable
Fixed
Fixed

Pg 82

S2-16 (continued)

Cost incurred
j. Cost of fabric used at a clothing manufacturer

Variable or Fixed

Variable

n. Property taxes for a restaurant

Variable
Fixed
Variable
Fixed

o. Depreciation of exercise equipment at the YMCA

Fixed

k. Cost of fruit sold at a grocery store

l. Monthly office lease costs for a CPA firm
m. Monthly cost of French fries at a McDonalds restaurant

E2-28 pg 87

Cost incurred
a. The interest rate paid on invested funds, when deciding how
much inventory to keep on-hand
b. Cost of computers purchased 6 months ago, when deciding
whether to upgrade to computers with faster processing speed
c. The property tax rates in different locales, when deciding where
to locate the companys headquarters
d. The type of fuel (gas or diesel) used by delivery vans, when
deciding which make and model of van to purchase for the
companys delivery van fleet.
e. Cost of operating automated production machinery versus the
cost of direct labor, when deciding whether to automate
production.
f. The fair market value of old manufacturing equipment when
deciding whether or not to replace it with newer equipment.
g. Cost of purchasing packaging materials from an outside vendor,
when deciding whether to continue manufacturing the packaging
materials in-house.
h. Depreciation expense on old manufacturing equipment when
deciding whether or not to replace it with newer equipment.
i. The cost of land purchased 3 years ago, when deciding whether
to build on the land now or wait two more years before building.

relevant/irrelevant

relevant
irrelevant
relevant
relevant
relevant
relevant
relevant
irrelevant
irrelevant

Managers Responsibilities

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Inc.

61