Chat Session 1 - Cost Accounting Cost Chat Session 1 Chapter 1 The Accountant’s Role in the Organization Organization What is cost accounting

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Unformatted text preview: Cost Accounting Cost Chat Session 1 Chapter 1: The Accountant’s Role in the Organization Organization What is cost accounting? Differences between managerial Differences and financial accounting. and The value chain and the supply The chain chain Guidelines to provide value The Business Function of the Value Chain Value Research and development Design of products, services, or Design processes processes Production Marketing Distribution Customer service Chapter 2: An Introduction to Cost Terms and Purposes Purposes What is a cost? What is a cost object? Direct and indirect costs Cost allocation Cost behaviors Variable costs Fixed costs Mixed costs Chapter 2: An Introduction to Cost Terms and Purposes Purposes Relevant range Cost drivers Total cost and unit costs Manufacturing companies, Manufacturing merchandising companies, and service companies service Inventoriable and period costs Chapter 2: An Introduction to Cost Terms and Purposes Purposes Variable cost: Changes in total as volume changes Changes total Remains constant per unit Remains per Fixed cost: Unchanged in total as volume changes Unchanged total Decreases per unit as production Decreases per increases increases Chapter 2: An Introduction to Cost Terms and Purposes Purposes Cost Example: Leased Car Fixed: monthly lease payment of $500 per month Fixed: which includes 10,000 miles. There are no additional charges as long as you stay within your miles miles Variable: a per mile charge of $.30 for every mile used Variable: above the 10,000 miles above Chapter 2: An Introduction to Cost Terms and Purposes Purposes Three types of companies: Manufacturer Purchase material and convert to Purchase finished goods – auto manufacturer finished Purchase finished goods and resell Purchase them – retail store them Provide service or intangible products Provide lawyer lawyer Merchandiser Service Service Chapter 2: An Introduction to Cost Terms and Purposes Purposes Three categories of inventory for a Three manufacturing company manufacturing Direct materials Work in process Finished goods Chapter 2: An Introduction to Cost Terms and Purposes Purposes Three Three categories of a manufacturing company costs company Direct material Direct Direct manufacturing labor labor Indirect Indirect manufacturing costs (manufacturing overhead) overhead) Chapter 2: An Introduction to Cost Terms and Purposes Purposes Inventoriable Inventoriable cost (product costs) costs) Inventory Inventory recorded on the balance sheet balance until sold – eventually becomes cost of good sold on the income statement statement Period cost All costs other All than cost of goods sold – reported as expenses on expenses the income statement in the statement period they are incurred incurred Chapter 2: An Introduction to Cost Terms and Purposes Purposes Three key features of cost accounting Three and cost management: and 1. Calculating the cost of products, Calculating services, and other cost objects services, 2. Obtaining information for planning Obtaining and control and performance evaluation evaluation 3. Analyzing the relevant information Analyzing for decision making for Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis Key Assumptions: Changes in revenues and costs occur Changes only because of changes in output only Total costs can be separated into fixed Total and variable costs and Revenues and costs are linearly related Revenues to output within the relevant range to Unit selling price, unit variable costs, Unit and fixed costs are known and constant and The analysis covers only a single The product or product mix product The analysis is not impacted by the time The value of money value Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis Revenue – Expenses = Income. Contribution margin (CM) = Total Revenues (Rev) – Total Contribution Variable Costs (VC). Variable CM (per unit) = Unit Selling Price – Unit Variable Costs. CM $2 = $10 - $8 $2 CM (% Sales) = Unit CM/Unit Selling Price. 20% = $2 / $10 CM (total) = Sales Revenues – Variable Costs (assume 100 units) $200 = $1000 - $800 Multi-Step Income Statements: Multi-Step Rev – VC = CM – FC = OI * FC = Fixed Costs Rev Income Income OI = Operating Operating Income (OI) vs. Net Income (NI) OI + Nonoperating Income – Nonoperating Expenses – Income Tax = OI NI NI Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis Breakeven Point = Breakeven fixed costs / contribution margin fixed If fixed costs are $400 / $2 = 200 units would need If units to be made to breakeven to If fixed costs are $400 / 20% = $2000 in sales If revenue would need to be earned to breakeven revenue PROOF: PROOF: $2000 - $1600 (VC) = 400 (CM) – 400 (FC) = $0 $2000 Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis Target operating income (TOI) = Target (fixed costs + TOI) / contribution margin contribution If we want a target operating income of $600: ($400 + 600) / 20% = $5000 sales dollars must be ($400 sales earned, or $5000 / $10 = 500 units. units PROOF: $5000 - $4000 (VC) = 1000 (CM) – 400 (FC) = $600 Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis Income tax affect Target net income (TNI) = Target target operating income (TOI) = target net income / (1-tax rate) income If a company earns $50,000 before taxes and If the tax rate is 40%: the Operating Income $50,000 Operating $50,000 Deduct taxes @ 40% 20,000 Net Income $30,000 $30,000 / (1-40%) = $50,000 Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis CVP analysis is used for: Strategic decisions How much to spend on advertising Whether to expand into new markets Add to existing product lines Chapter 3 Chapter Cost-Volume-Profit (CVP) Cost-Volume-Profit Analysis Analysis Sensitivity Analysis (what-if) Margin of Safety: Budgeted revenues – breakeven Budgeted revenues = margin of safety dollars dollars $5,000 - $2,000 = $3,000 safety net Margin of safety dollars / budgeted Margin revenues = margin of safety percentage percentage $3,000 / $5,000 = 60% (or sales can $3,000 drop 60% before it effects our bottom line line ...
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This note was uploaded on 10/26/2009 for the course ACTP 5004 taught by Professor Montesarchio during the Summer '08 term at Nova Southeastern University.

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