Lecture Fundamentals of cost accounting (4th edition): Chapter 6 - Lanen, Anderson, Maher

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(BQ) Chapter 6: Fundamentals of product and service costing. This chapter provides an overview of alternative cost systems for product and service costing. Details and extensions to the basic models described here are presented in the following three chapters.

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Nội dung Text: Lecture Fundamentals of cost accounting (4th edition): Chapter 6 - Lanen, Anderson, Maher

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Fundamentals of Product and Service Costing Chapter 6 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGrawHill/Irwin Copyright © 2014 by The McGrawHill Companies, Inc. All rights reserved.
Learning Objectives LO 6-1 Explain the fundamental themes underlying the design of cost systems. LO 6-2 Explain how cost allocation is used in a cost management system. LO 6-3 Explain how a basic product costing system works. LO 6-4 Understand how overhead cost is allocated to products. LO 6-5 Explain the operation of a two-stage allocation system for product costing. LO 6-6 Describe the three basic types of product costing systems: job order, process, and operations. 63
Cost Management System Keys to a good cost management system: • Oriented to the needs of the decision makers • Designed so that benefits exceed costs 64
LO 6-1 Cost Management Systems LO 6-1 Explain the fundamental themes underlying the design of cost systems. The objective of the cost management system is to provide information about costs relevant for decision making. The cost management system accumulates and reports costs about processes, products, and services. 65
Reasons to Calculate Product LO 6-1 or Service Costs • For decision making • For deciding what to sell • For setting prices • For knowing the cost of goods sold • For knowing the cost of inventory 66
LO 6-2 Cost Allocation and Product Costing LO 6-2 Explain how cost allocation is used in a cost management system. Basic Cost Flow Diagram Cost Direct Direct Manufacturing pools materials labor overhead Indirect Cost allocation (allocated rule by direct Direct labor cost) Cost Alpha Beta objects 67
LO 6-2 Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes Cost systems should have a decision focus. Different cost information is used for different purposes. Cost information for managerial purposes must meet the cost-benefit test. 68
LO 6-3 Basic Cost Flow Model LO 6-3 Explain how a basic product costing system works. How costs and units move through inventories: This is true for the following accounts: – Raw Materials (RM) – Work-in-Process (WIP) – Finished Goods (FG) 69
Costing with No WorkinProcess LO 6-3 Inventories Baxter Paint begins production on April 1. It starts and completes production of 100,000 gallons of paint in April and has no ending work-in-process inventory. Cost of resources used in April: Materials $ 400,000 Labor 100,000 Manufacturing overhead 500,000 Total $1,000,000 610
Costing with No WorkinProcess LO 6-3 Inventories Finished Goods 611
Costing with No WorkinProcess LO 6-3 Inventories What are the costs at the end of the period? $1,000,000 was added to work-in-process and then transferred out to finished goods. Since Baxter produced 100,000 gallons of paint, then the cost per gallon of paint is $10. 612
Costing with Ending WorkinProcess LO 6-3 Inventories Production for Baxter Paint for May follows (gallons): Beginning inventory -0- Started in May 110,000 Total 110,000 Ending WIP (50% complete) 20,000 Transferred out 90,000 613
Costing with Ending WorkinProcess LO 6-3 Inventories Finished goods 614
Costing with Ending WorkinProcess LO 6-3 Inventories How do we cost Baxter’s 20,000 gallons of paint that are only half finished? 20,000 gallons half finished is equivalent to 10,000 gallons finished. 90,000 gallons transferred out plus 10,000 equivalent gallons of finished paint equals 100,000 equivalent gallons of paint. Gallons of paint transferred out 90,000 Equivalent gallons of finished paint 10,000 Total equivalent gallons of paint 100,000 615
Costing with Ending WorkinProcess LO 6-3 Inventories Costs incurred in May Year 2: Materials $390,000 Labor 100,000 Manufacturing overhead 500,000 Total $990,000 $990,000/100,000 gallons = $9.90 per gallon Costs transferred to finished goods: 90,000 gallons × $9.90/gallon = $891,000 616
Costing with Ending WorkinProcess LO 6-3 Inventories 617
Costing in a Multiple Product, LO 6-3 Discrete Process Industry Grange Boats Cost Flow Diagram: Cost Allocation Bases Cost Direct Direct Manufacturing pools materials labor overhead Direct Direct Indirect cost cost cost (allocated in proportion to direct labor-hours) Cost C-27s C-20s objects 27-foot sailboat 20-foot sailboat 618
Costing in a Multiple Product, LO 6-3 Discrete Process Industry Product Costs for January Year 2—Grange Boats C-27s C-20s Total Units produced 10 30 40 Direct labor-hours 2,000 3,000 5,000 Costs: Direct materials $40,000 $36,000 $ 76,000 Direct labor 72,000 78,000 150,000 Manufacturing overhead 180,000 Total $406,000 619
Costing in a Multiple Product, LO 6-3 Discrete Process Industry Cost Direct Direct pools materials labor $76,000 $150,000 Direct cost Direct cost Cost objects C-27s C-20s $40,000 $36,000 $72,000 $78,000 620