manufacturing costs and job-order costing systems
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Manufacturing Costs and Job-Order Costing Systems. UAA – ACCT 202 Principles of Managerial Accounting Dr. Fred Barbee. Chapter. Cost Classifications for Manufacturing Firms. Specify “Tag” the Cost. - PowerPoint PPT PresentationTRANSCRIPT
Manufacturing Costs and Job-Order Costing Systems
UAA – ACCT 202 Principles of Managerial Accounting
Dr. Fred Barbee
Chapter
Cost Classifications for Manufacturing Firms
Specify “Tag” the Cost
We need to place an adjective (tag) on the cost to identify what it is.
Direct
Cost
Manufacturing Costs
Manufacturing Costs
General Model of Cost Flow and Accumulation
Cost Flows in a Manufacturing Firm
DirectMaterials
DirectLabor
Mfg.Overhead
Work-in-Process
FinishedGoods
Cost-ofGoods Sold
Cost Flows in a Manufacturing Firm
DirectMaterials
DirectLabor
Mfg.Overhead
Work-in-Process
FinishedGoods
Cost-ofGoods Sold
Manufacturing CostsCosts incurred in the
manufacture of goods being produced.
•Known as product (inventoriable) costs. •They are expensed when the product is sold.
Cost Flows in a Manufacturing Firm
DirectMaterials
DirectLabor
Mfg.Overhead
Work-in-Process
FinishedGoods
Cost-ofGoods Sold
Those materials that become an integral part of the finished
product and can be physically traced to the product.
Those factory labor costs that can be physically traced to
the production of the finished product.
All costs associated with the manufacture of a product except direct materials and direct labor.
Direct Materials
DM in TheoryEvery component
DM in RealityMust apply cost-benefit rule
DM – What is Cost?
The invoice price of the raw materials,
Shipping costs,
Import duties, and
A reduction for any allowable discounts for prompt payment.
MOH – Other Names
Overhead
Burden
Indirect Manufacturing Costs
Factory Expenses
MOH – A Few Examples
Factory Supervision,
Factory Telephone, heat, light, power,
Factory bookkeeping salaries,
Insurance
Depreciation/factory equipment
Indirect materials, labor.
DirectMaterials
DirectLabor
Mfg.Overhead
Work-in-Process
FinishedGoods
Cost-ofGoods Sold
Cost of Goods Sold
NonmanufacturingExpenses
Sales
-= Gross Margin
-Net Income=
Income Statement
Sold
•Known as Period costs. •They are expensed in the period in which they are incurred.
Nonmanufacturing Costs
Costs incurred for other than production activities.
DirectMaterials
DirectLabor
Mfg.Overhead
Work-in-Process
FinishedGoods
Cost-ofGoods Sold
Cost of Goods Sold
NonmanufacturingExpenses
Sales
-= Gross Margin
-Net Income=
Income Statement
Sold
General & Administrative Expenses
All executive, organizational, and clerical costs associated with the general
management of the firm.Selling & Distribution Expenses
All costs necessary to secure customer orders and get the products/services to the customer.
DirectMaterials
DirectLabor
Mfg.Overhead
Work-in-Process
FinishedGoods
Cost-ofGoods Sold
Cost of Goods Sold
NonmanufacturingExpenses
Sales
-= Gross Margin
-Net Income=
Income Statement
Sold
Product Costs
Period Costs
Nonmanufacturing Costs
Nonmanufacturing Costs
All costs not associated with the production of goods.Selling CostsAdministrative Costs
Cost Flows in a Manufacturing Firm
Cost Flows in a Manufacturing Firm
DM
DL
MOH
DM Inv.
WIP Inv.
FG Inv.
WIP
Manufacturing Costs
COGS
S&A
Sales-= Gross Margin
-Net Income=
Balance Sheet
Income Statement
Unfinished
Finished
Sold
UnusedUsed
Used
Applied
Product and Period Costs
Cost Flows in a Manufacturing Firm
DM
DL
MOH
DM Inv.
WIP Inv.
FG Inv.
WIP
Manufacturing Costs
COGS
S&A
Sales-= Gross Margin
-Net Income=
Balance Sheet
Period Period CostsCosts
Income Statement
Prod
uct C
osts
Prod
uct C
osts
Unfinished
Finished
Sold
UnusedUsed
Used
Applied
Cost Flows in a Manufacturing Firm
DM
DL
MOH
DM Inv.
WIP Inv.
FG Inv.
WIP
Manufacturing Costs
COGS
S&A
Sales-= Gross Margin
-Net Income=
Balance Sheet
Income Statement
Prod
uct C
osts
Prod
uct C
osts
Unfinished
Finished
Sold
UnusedUsed
Used
Applied
Product Costs: Costs assigned to products (i.e., Work in Process Inventory.
They “attach” themselves to units of product
and remain with the product until it is sold.
Cost Flows in a Manufacturing Firm
DM
DL
MOH
DM Inv.
WIP Inv.
FG Inv.
WIP
Manufacturing Costs
COGS
S&A
Sales-= Gross Margin
-Net Income=
Balance Sheet
Income Statement
Prod
uct C
osts
Prod
uct C
osts
Unfinished
Finished
Sold
UnusedUsed
Used
Applied
Cost Flows in a Manufacturing Firm
DM
DL
MOH
DM Inv.
WIP Inv.
FG Inv.
WIP
Manufacturing Costs
COGS
S&A
Sales-= Gross Margin
-Net Income=
Balance Sheet
Income Statement
Unfinished
Finished
Sold
UnusedUsed
Used
Applied
Period Costs: Expired non product costs. Always charged to expense in the period in
which they occur.
Period Period CostsCosts
Product Costs Vs. Period Costs
DM, DL, MOH, S&A Costs
DM, DLMOH
DM, DLMOH
DM, DLMOH
SS&&AA
SS&&AA
SS&&AA
Product Product CostsCosts
Selling and Administrative Costs
Work-in-Process
Finished Goods
Sale
Cost of Goods Sold
DM ,DL DM ,DL MOHMOH
Period Period CostsCosts
Expensed in the currentperiod.
Balance Sheet Presentation of Product Costs
Balance Sheet Presentation
Income Statement Presentation of Product Costs
Income Statement
Direct Materials Used:
Beginning inventory $200,000
Add: Purchases 450,000
Materials available $650,000
Less: Ending inventory 50,000$ 600,000
Direct Labor 350,000
Manufacturing overhead:
Indirect labor $122,500
Depreciation 177,500
Rent 50,000
Utilities 37,500
Property taxes 12,500
Maintenance 50,000 450,000
Total manufacturing costs added $1,400,000
Add: Beginning work in process 200,000
Total manufacturing costs $1,600,000
Less: Ending work in process 400,000
Cost of goods manufactured $1,200,000
========
Direct Materials Used:
Beginning inventory $200,000
Add: Purchases 450,000
Materials available $650,000
Less: Ending inventory 50,000$ 600,000
Direct Labor 350,000
Manufacturing overhead:
Indirect labor $122,500
Depreciation 177,500
Rent 50,000
Utilities 37,500
Property taxes 12,500
Maintenance 50,000 450,000
Total manufacturing costs added $1,400,000
Add: Beginning work in process 200,000
Total manufacturing costs $1,600,000
Less: Ending work in process 400,000
Cost of goods manufactured $1,200,000
========
The three component parts of
a manufactured product.
Sales $2,800,000
Less cost of goods sold:
Beginning finished goods inventory $ 500,000
Add: Cost of goods manufactured 1,200,000
Cost of goods available for sale $1,700,000
Less: Ending finished goods inventory 300,000 1,400,000
Gross margin $1,400,000
Less operating expenses:
Selling expenses $ 600,000
Administrative expenses 300,000 900,000
Income before taxes $ 500,000
========
Cost of goods manufactured from the COGM Statement.
Different Costs for Different Purposes
Product Costing Definitions
Research andDevelopment
Production
Marketing
Production
Marketing
Production
Pricing DecisionsProduct-Mix DecisionsStrategic Profitability Analysis
Strategic Design DecisionsTactical Profitability Analysis
External FinancialReporting
Value-Chain Operating Traditional Product Costs Product Costs Product Costs
Customer Service Customer Service
Research andDevelopment
Production
Marketing
Pricing DecisionsProduct-Mix DecisionsStrategic Profitability Analysis
Value-Chain Product Costs
Customer ServiceIf making any of these types of decisions, I need to look at all costs.
Production
Marketing
Strategic Design DecisionsTactical Profitability Analysis
Operating Product Costs
Customer Service
On the other hand, for these decisions, we might be able to ignore some of the costs.
Product Costing Definitions
Research andDevelopment
Production
Marketing
Production
Marketing
Production
Pricing DecisionsProduct-Mix DecisionsStrategic Profitability Analysis
Strategic Design DecisionsTactical Profitability Analysis
External FinancialReporting
Value-Chain Operating Traditional Product Costs Product Costs Product Costs
Customer Service Customer Service
For external financial reporting, we need only these
costs – because that is what GAAP
says we need.
Types of Costing Systems
Balance Sheet Presentation
Accumulating Manufacturing Costs
Two Types of Costing Systems
Cost Accounting SystemsProduct Costs
Job-Order Costing Process Costing
Total/Unit Cost
Process CostingHomogeneous products
continuously produced.Costs accumulated by process
(time).Unit cost = total costs for period
divided by number of units produced.
Process Costing System
DMDL
MOHProcess B
Process A
Finished Goods
Cost of Goods SoldProcess C
Job-Order CostingWide variety of distinct products.
Costs accumulated by job.Unit cost = total costs of the job
divided by number of units in the job.
Job-Order Costing
DM DL
MOH
Job 100
Job 101
Job 102
Finished Goods
Cost of Goods
Sold
Cost of Goods SoldWork in Process Finished Goods
Work-in-Process