Professional Documents
Culture Documents
Basic Cost Management Concepts and Accounting for Mass Customization Operations
McGraw-Hill/Irwin
Learning Objective 1
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Process of Management
Strategy Formulation Planning
Directing
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Learning Objective 2
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Learning Objective 3
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Operating expenses
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Manufacturer
Current Assets
Cash Receivables Prepaid Expenses Inventories
Raw Materials Work in Process Finished Goods
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Manufacturer
Current Assets
Cash materials Those waiting to Receivables be processed. Prepaid Expenses Inventories
Raw Materials Work in Process Finished Goods
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Manufacturer
products material to q Cash which some labor q Receivables and/or overhead has been added. q Prepaid Expenses q Inventories
Raw Materials Work in Process Finished Goods
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Manufacturer
Current Assets
Cash q Receivables Completed products awaiting sale. q Prepaid Expenses q Inventories
Raw Materials Work in Process Finished Goods
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Learning Objective 4
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Batch
Caterpillar
Assembly Line
Ford
Mass Customization
Dell
Continuous Flow
Exxon
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Learning Objective 5
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Manufacturing Costs
Direct Material Direct Labor Manufacturing Overhead
The Product
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Direct Material
Cost of raw material that is used to make, and can be conveniently traced, to the finished product.
Example: Example: Steel used to Steel used to manufacture manufacture the automobile. the automobile.
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Direct Labor
Cost of salaries, wages, and fringe benefits for personnel who work directly on manufactured products.
Example: Example: Wages paid to an Wages paid to an automobile assembly automobile assembly worker. worker.
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Manufacturing Overhead
All other manufacturing costs
Indirect Material Indirect Labor Other Costs
Materials used to support the production process. Examples: lubricants and cleaning supplies used in an automobile assembly plant.
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Manufacturing Overhead
All other manufacturing costs
Indirect Material Indirect Labor Other Costs
Cost of personnel who do not work directly on the product. Examples: maintenance workers, janitors and security guards.
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Manufacturing Overhead
All other manufacturing costs
Indirect Material Indirect Labor Other Costs
Examples: depreciation on plant and equipment, property taxes, insurance, utilities, overtime premium, and unavoidable idle time.
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Prime Cost
Conversion Cost
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Learning Objective 6
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$ 11 1 1 ,11
Schedule of Cost of Goods Manufactured Raw material used Direct labor Total manufacturing overhead Total manufacturing costs Add: Work-in-process inventory, January $ 1 $ 11 $ $ 11 1 1 ,11 1 ,11 11 11 1 1 ,11 11 1 1 ,11 11 1 11 1 1 ,11 11 1 11 1 1 ,11
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Computation of Total Manufacturing Overhead Indirect material Indirect labor Depreciation on factory Depreciation on equipment Utilities Comet Computer Corporation Insurance Schedule of Cost of Goods Manufactured Total manufacturing overhead $ $ 1 ,11 11 1 ,11 11 1 ,11 11 1 ,11 11 1 ,11 11 11 ,11 11 1 1 ,11
Direct labor Total manufacturing overhead Total manufacturing costs Add: Work-in-process inventory, January $ 1 $ 11 $
Ending work-in-process Total manufacturing costs inventory contains inventory, January 1 Add: Work-in-process the cost of unfinished goods, and is Subtotal reported in the current assets December Deduct: Work-in-process inventory, section of the balance sheet. Cost of goods manufactured
Comet Computer Corporation Schedule of Cost of Goods Sold For the Year Ended December Finished-goods inventory, Jan. 1 Add: Cost of goods manufactured Cost of goods available for sale Comet Computer Corporation Deduct Finished-goods inventory, Dec. 11 Cost of goods sold 11 1 , 11 X $ 11 1 11 1 1 ,11 11 1 1 ,11 11 1 $ 11 1 1 ,11
, X 1 11 11
Sales revenue Less: Cost of goods sold Gross margin Selling and administrative expenses Income before taxes Income tax expense Net income
$ $ $ $
Learning Objective 7
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Learning Objective 8
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Cost Classifications
Cost behavior means how a cost will react to changes in the level of business activity.
Total variable costs change when activity changes. Total fixed costs remain unchanged when activity changes.
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Movies Watched
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Cost Classifications
Summary of Variable and Fixed Cost Behavior
Cost Variable In Total Total variable cost changes as activity level changes. Total fixed cost remains the same even when the activity level changes. Per Unit Variable cost per unit remains the same over wide ranges of activity. Fixed cost per unit goes down as activity level goes up.
Fixed
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Learning Objective 9
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Indirect costs
Costs that must be allocated in order to be assigned to a product or department. Example: cost of national advertising for an airline is indirect to a particular flight.
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Cost of food used Restaurant in a restaurant manager Cost of national advertising by a restaurant chain Restaurant manager
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Learning Objective 10
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Opportunity Cost
The potential benefit that is given up when one alternative is selected over another.
Example: If you were not attending college, you could be earning $20,000 per year. Your opportunity cost of attending college for one year is $20,000.
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Sunk Costs
All costs incurred in the past that cannot be changed by any decision made now or in the future are sunk costs. Sunk costs should not be considered in decisions.
Example: You bought an automobile that cost $12,000 two years ago. The $12,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $12,000 cost.
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Differential Costs
Costs that differ between alternatives.
Example: You can earn $1,500 per month in your hometown or $2,000 per month in a nearby city. Your commuting costs are $50 per month in your hometown and $300 per month to the city. What is your differential cost? $300 - $50 = $250
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Marginal and average costs are largely a function of cost behavior -- variable and fixed costs.
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Costs
Benefits
More information does not mean more benefits if information overload results.
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End of Chapter 2
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