Professional Documents
Culture Documents
CHAPTER
Basic
Management
Accounting
Concepts
2 -2
Objectives
Objectives
1. Describe the cost assignment process.
2.
After
studying
this
After
studying
this
Define tangible and intangible products and
chapter,
you
should
chapter,
you
should
explain why there are different product cost
be
be able
able to:
to:
definitions.
service organizations.
4. Outline the differences between functional-based
and activity-based management accounting
systems.
2 -3
Cost
the
cash-equivalent
II is
see
Its
Cost
is
the cash
cash
cash-equivalent value
value
see
Itsaor
aordollar
dollar
sacrificed
for
measure
of
sacrificed
for goods
goods
and services
services that
that isis
measure
ofthe
theand
expected
to
future
resources
used
expected
to bring
bring
atocurrent
current or
orExactly
future what
Exactly
what isis
resources
usedato
benefit
the
meant
achieve
benefitato
the organization.
organization.
meant by
by cost?
cost?
achieve
atogiven
given
benefit.
benefit.
2 -4
2 -5
2 -6
2 -7
2 -8
Cost
Cost Assignment
Assignment Methods
Methods
Cost of Resources
Direct
Tracing
Driver
Tracing
Allocation
Physical
Observation
Causal
Relationship
Assumed
Relationship
Cost Objects
2.
3.
4.
2 -9
Services
Services cannot
cannot be
be stored.
stored.
Intangibility
No
patent
protection.
No
patent
protection.
Services
benefits
expire
Services
benefits
expire
Cannot
display
or
Cannot
display
or
quickly.
Customer
directly
Perishability
quickly. directly
Customer
communicate
services.
communicate
services.
Services
may
be
repeated
involved
with
Services
may
be
repeated
involved
with
Price
difficult
to
set.
Price
difficult
to
set.
often
for
customer.
production
service.
Inseparability
often
for one
oneof
customer.
production
of
service.
Centralized
Centralized mass
mass
production
of
services
Wide
variation
service
Heterogeneity
production
ofin
services
Wide
variation
in
service
difficult.
products
difficult.
products possible.
possible.
Derived
Derived Properties
Properties
2.
3.
4.
2 -10
No
No inventories.
inventories.
Intangibility
Strong
Strong ethical
ethical code.
code.
Price
difficult
to
set.
No
inventories.
Price
difficult
to
set.
No
inventories.
Costs
often
accounted
Perishability
Costs
often
accounted
Demand
for
more
accurate
Need
for
standards
and
Demand
for
more
accurate
Need
for
standards
and
for
by
customer
type.
forassignments.
by customer
type.
cost
consistent
high
quality.
cost
assignments.
consistent
high
quality.
Demand
for
measureInseparability
Productivity
and
quality
Demand for and
measureProductivity
quality
ment
measurement
and
ment and
and control
control
of
measurement
andof
quality
maintain
control
must
be
Heterogeneity
quality to
to
maintain
control
must
be
consistency.
ongoing.
consistency.
ongoing.
Total
quality
manageTotal
quality
manageImpact
on
Management
Impact on Management
ment
critical.
ment
critical.
Accounting
Accounting
2 -11
2 -12
Design
Service
Develop
Distribute
Produce
Market
Traditional Product
Costs
Production
Production
Production
Marketing
Marketing
Customer
Service
Customer
Service
Value-Chain
Product Costs
2 -13
Research and
Development
Pricing Decisions
Strategic Design Decisions
Product-Mix Decisions
Tactical Profitability
Strategic Profitability
Analysis
Analysis
External Financial
Reporting
2 -14
2 -15
2 -16
2 -17
Noninventoriable
Noninventoriable (period)
(period) costs
costs
are
are expensed
expensed in
in 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 -18
Prime Cost :
Direct Materials Costs + Direct Labor Costs
Conversion Cost:
Direct Labor Costs + Overhead Costs
2 -19
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 1,400,000
Gross margin
$1,400,000
$ 600,000
300,000
900,000
$ 500,000
2 -20
2-20
2 -21
2-21
2 -22
$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 -23
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
Functional-Based
Management
Management Model
Model
Cost View
Resources
Operational View
Efficiency
Analysis
Functions
Products
Performance
Analysis
2 -24
Activity-Based
Activity-Based
Management
Management Model
Model
2 -25
Cost View
Resources
Process View
Driver
Analysis
Activities
Performance
Analysis
Why?
What?
How Well?
Products and
Customers
Functional-Based
1. Unit-based drivers
Activity-Based
2. Allocation-intensive
4. Focus on managing
activities
5. Detailed activity
information
6. Systematic performance
maximization
2 -26
2 -27
Chapter Two
The
The End
End
2 -28