MGMT_201_(Ganguly)_Lecture_3

MGMT_201_(Ganguly)_Lecture_3 - MGMT201(Ganguly)...

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Unformatted text preview: MGMT201(Ganguly) MGMT201(Ganguly) Lecture 3 Review the Schedule of Cost of Review Goods Manufactured Goods 1. Comprised of three components 2. Raw Materials Inventory analysis 3. Calculation of Total Manufacturing Cost 4. Work-in-Process Inventory analysis Final result of number 3 is Cost of Goods Manufactured or the amount transferred to Finished Goods Inventory 2 Review the Schedule of Cost of Review Goods Sold & Inventory Goods In the analysis of Finished Goods Inventory All Inventory accounts analyzed the same way Order does not Beginning Balance matter here + Additions or Transfers In = Inventory Available - Ending Balance = Raw Materials Used, Cost of Goods Manufactured or Cost of Goods Sold 3 Direct and Indirect Costs Direct costs Indirect costs Costs that can be easily and conveniently traced to a product or department. Example: cost of paint in the paint department of an automobile assembly plant. 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. 4 Direct and Indirect Costs A cost can be direct to the department, but indirect to units of product produced in the department. Example: department manager’s salary. 5 Identify, Define & Describe Identify, Different Cost Systems Different Job­Order Costs are assigned to batches or job orders of production Process Costing Accumulates all the production costs for a large number of units of output & averages the costs over all units produced 6 Review the Flow of Manufacturing Review Costs Costs Work-in-Process Direct Materials Direct Labor Manufact. Overhead Transfer Costs Finished Goods Inventory Sell Product Transfer Product Costs When Product Is Finished Cost of Goods Sold Income Summary Close Expense at the End of the Accounting Period 7 Review the Flow of Manufacturing Review Costs Costs Work-in-Process Direct Materials Direct Labor Manufact. Overhead Finished Goods Inventory wait until the end of the period to find Income Summary Cost of Goods Sold out what the manufacturing Transfer Close Expense at overheads will be! Costs the End of the Accounting Period 8 Transfer Product Sell Costs When Product Product But… Managers can’t Is Finished Explain Overhead Application & Explain Absorption (Normal Costing) Absorption The process of assigning overhead to production jobs = Budgeted Manufacturing Overhead Cost Budgeted Amount of Cost Driver (0r Activity Base) Predetermined overhead rate Overhead is applied based upon actual quantity of cost driver used 9 Summarize Event Sequence in JobOrder Costing CostAccounting Activities Provides basis for assigning costs to jobs Materials Requisition Production order for job Direct labor time record Cost Driver Production Process Next Slide Documents X Predetermined Overhead Rate Production Takes Place 10 Authorizes Production Authorizes Materials Release Event Sequence Continued Accumulate cost for job Transfers job costs from Work-in-Process Inventory to Finished Goods Inventory Ledger Work-in-Process Direct material Direct labor Manufacturing Overhead Ledger Finished Goods Next Slide Production of job is finished 11 Event Sequence Event Completed Completed Transfers job costs from Finished Goods Inventory to Cost of Goods Sold Ledger Cost of Goods Sold Sale of Goods 12 Summarize Accounting for Summarize Manufacturing Overheads Manufacturing Beginning of accounting period End of accounting period Accounting Period Time Actual overhead measured Budgeted overhead (& calculation of predetermined overhead rate Application of overhead 13 Illustrate the Manufacturing Illustrate Overhead Account Overhead Manufacturing Overhead Actual MO costs are accumulated as incurred MO is applied to production jobs At pre­detrmined overhead rates Various Accounts Associated credits to various accounts Work-in-Process MO is added to Work-inProcess Inventory 14 Accounting for Accounting Over- or Under- Applied Overhead OverTwo Alternatives 1. Close to Cost of Goods Sold 2. Prorate balance between 1. Work­in­Process Inventory 2. Finished Goods Inventory 3. Cost of Goods Sold (Pro­rating would be based on balances in those accounts on a percent to total basis.) 15 Closing to Cost of Goods Sold In case of Overapplication In case of Underapplication Debit Manufacturing Overhead; Credit Cost of Goods Sold Debit Cost of Goods Sold; Credit Manufacturing Overhead 16 Closing by pro-rating In case of Overapplication In case of Underapplication Debit Manufacturing Overhead; Credit WIP (inventory), Finished Goods (inventory) and Cost of Goods Sold Debit WIP (inventory), Finished Goods (inventory) and Cost of Goods Sold; Credit Manufacturing Overhead 17 What are the guidelines for What choosing a cost driver? choosing Using a single cost driver common practice Volume based Should vary Similar to Costs Correlation of Cost & Cost Driver the best because of causation relationship 18 Discuss Limitations of Using Direct Discuss Labor as Cost Driver Labor Current Trend is Away from Using Direct Labor as a Cost Driver Increased Automation Results in: Manufacturing Overhead Being Much Greater in Size Direct Labor Being Much Smaller in Size 19 Diagram Two Stage Allocation Stage One Service Departments Service Department Costs are Allocated to Production Production Departments Cutting, Assembly, Finishing All Costs in Production Department are Applied to Products Production Jobs Pass Through 20 Overhead assigned to all departments Stage Two Overhead Assigned to Production Jobs End of Lecture 3 For Lecture 4: Do all Reading, HM homework listed for Lecture 4 Try (really really try) the selfstudy homework listed up to and including Lecture 4 From the next class, we may not remind you about your homework like this each time. You should already be “in the groove.” 21 ...
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This note was uploaded on 03/18/2011 for the course MGMT 201 taught by Professor Rowe during the Spring '08 term at Purdue University-West Lafayette.

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