Chapter%203%20Notes001 - Toma Tbmiinsofl THE UNIVERSITY OF...

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Unformatted text preview: Toma Tbmiinsofl THE UNIVERSITY OF TEXAS AT AUSTIN MCCOMBS SCHOOL OF BUSINESS ACC 312 — Spring 2011 Fundamentals of Managerial Accounting Instructor - Brian Lendecky, MPA, CPA (copyright 2011 C Brian Lendecky) Thursday and Tuesday, January 27 & February 1, 2011 Chapter 3 — Cost Flows and Cost Terminology Product Costs and Period — Service Organizations Productcosts—Tt/xe, cost G990dal‘cd with gqih'lj (Ara/(q mde “(6" 54k' Periodcosts— vie nof dn'rng I‘C'qur *0 “rd/(C5 A“ 54,1, 7M3; ewe, all (0)“ “the. a“ Aoi’ pde/cl' (0ng] Example — for a gym (which is a service organization), state whether the following costs are product or period. Yoga instructor salary Wei“: Personal trainer salary V” ‘0‘ Accountant salary g U36 C. Sales staff salary 9“ "'0‘ Electricity to run machines peed UCV Rent for actual gym prod 06 i Rent for administrative office pd icd Advertising I9; r I‘OA Product Costs and Period - Merchandising Organizations What is a merchandising organization? Pm arjc.n;za+;o¢\ ’Mal' hujs 3365 pm“ ‘ruQQNUf and NSC”; Sobsfqnf/afy We, 54w, Prckiuéh 1‘0 CU$toMQrs_ Unlike service firms, merchandising firms maintain an inventory of goods that they buy and sell. Thus, they have inventory. What does inventory turn into once you sell it? COGS ACC 311 review: what are the 4 methods companies can use to track inventory? Quick :‘Dcrx'i'tkcail'eh F IFO LIFO MN Exam; b No. For merchandising and manufacturing (we’ll get to manufacturing in a little bit) organizations, the terms period and product costs are also used to describe the timing with which expenses are recognized on the Income Statement. l’ a . \\ Product Cost (aka Inventoriable Cost) — (6765 “AM ‘1 ” PMf ((7 iwcn in; I c a pulq la LLA, 0 hi: {Luz int/(n+0 r7 ;5 - 'liqc/k (j 4 rQ (IQ/Viva”) Viq . Product costs are the costs of the actual merchandise inventory plus all costs incurred in bringing a unit to usable or salable condition and location. Merchandise Merchandise Cost of Goods Purchased Inventory Sold PeriodCost— All o'l'lAU U95”. WW, (csf3 DO NOT jodinba ll’lOQ/(lvy The] qre expo/dad I'm “ll/m {)(n’ccl Th9 am :‘Acurrcd, Product Costs and Period — Manufacturing Organizations What is a manufacturing organization? ‘ , , ILA orjmlzal‘lom The} “#9 likor ‘7”‘ie‘twmm‘ it) iim‘fisifl" “‘Pci} suck a mm M we paws . Lam's mg- My Mm things. For manufacturing organizations, the definitions of period and product costs are basically the same as above for merchandising organizations: Period Cost — Costs that DO NOT go into inventory. They are expensed in the period they are incurred. All costs that are not product costs Product Cost (aka Inventoriable Cost) — Costs that are part of inventory, “capitalized”, until the inventory is sold. Then they are expensed eventually via COGS. Product costs are the costs of the actual raw materials plus all costs (direct labor and manufacturing overhead) incurred in bringing a unit to usable or salable condition and location. ‘ ' M N's; 'n 0 P03 (00% §le C(‘cdtf- (“5k cla‘cw work P ‘5 «My Law: N- 04 Her Direct Labor \ Raw Materials Direct Materials Work-in—Process _, Finished Goods _, Cost of Goods Inventory Inventory Inventory Sold Manufacturing / T Overhead “Cost of Goods Manufactured” (CGM) Product costs for a manufacturing firm are: Raw(Direct)Materials— All Malaria“ Mi “NW”; WW1 (Wr “’C “it (/D‘OM-Dlmk C'SP Direct labor— M waagab'on 0c Winger-,9 who 00"? Airflllj on (Me, Pradocr loginj Manufadvmd. Dirac? Cosf», Factoryoverhead— All OHM; NM £6 That «M relaW (a M pfodUCi' but, CGAM" be "mum l" "A “°"°M"“Uj io‘gl'b’b W3. Idtraf Co“: All other costs are period costs. Raw Materials WIP F G Inventog Inventory Inventog COGS Beginning Balance Beginning Balance Beginning Balance 0 + Purchases + Direct Materials + CGM (amt from WIP) + amount sold - Direct Materials + Direct Labor Cost of goods avail for sale Ending Balance Ending Balance + MOH - COGS - CGM (amt to PG) Ending Balance Ending Balance Journal Entries 1. When raw materials are purchased Raul Mal-(rial; Inuwl-“J (A3 XX («S k a r / P 7‘ X 2. When raw materials are put into the manufacturing process (aka become direct materials) \QIP lmuwonj (A) XX RCV) mahn‘a‘S imuwhg (AB )( X 3. When direct labor is used in the manufacturing process wt? TmJUWOFB (A) 74* (w,\\ w LO/P >4 *4 4. When manufacturing overhead is used in the manufacturing process wiP invmlvm/ (A) x; cask M A/p H 5. When the product is completed and ready for sale F e Imam; W; ><+ wig: “(Rummy (Al x 7g 6. When the product is sold l (o 6; (mm) X N P6; inuwtory (M Let’s do some examples. State whether each cost below for MAGF is a product or period cost and if it is a product cost whether it is raw materials, direct labor, or factory overhead. Tomatoes cow) M ( 'lcr {a () Dough mm Malt'i'fil) Cheese («u N‘ tug“, Worker putting cheese on the lasagna A ‘. at [r («soar VP of Production - MoH Electricity in factory O H Electricity in accounting office ear,‘ ca (cgt (at m? n I VHAHUQ can Machine Maintenance staff wages W MOH CFO’s salary kocn'é‘c‘ (6%? VP of Sales’s salary Perla 6 cost Receptionist’s wages rrc'a'ad (0% Some other vocabulary: What is gross margin? Red m 0"» ~ 606‘) or stated another way ECUtM’t ~ a ll prod out LUSH lira? Prime Costs = Kc“; Material (€85, szlvo f ( o5 (/4 Conversion Costs= Mo“ 1' “‘90” So, building on what we learned in Chapter 2, any cost (pasta, tomato sauce, salary of production supervisor, salary of accountant, rent, electricity, advertising campaign, gas, copier paper) is a: (“4030* or and; CG“, (Timing of expense on Income Statement for a merchandiser or manufacturer) AND Vm' all. or (ii Kalil (Behavior of cost) AND T21qu c r {A} ; rack (Assignment of cost to cost object) Blah, blah, blah.....Lendecky is boring me. How does all of this look in real life? Mini-Cooper Production http://www.youtube.com/watch?v=WA5kaKTHY Burt’s Beeswax Production . . ' .com/video/ la er.htm Id=15 803 52&titleId=13 74429268 1? la erId=20371 l706&cate o Id=l l75888584&lineu :- :t t a. U! o a. Question 1 How much are Cost of Goods Manufactured (CGM) and Cost of Goods Sold (COGS) for the period if: Beginning Raw Materials Inventory = 10 Raw Material purchases = 80 Ending RM Inventory = 30 Direct Labor = 15 Manufacturing Overhead = 45 Beginning WIP Inventory = 15 Ending WIP Inventory = 0 Beginning Finished Goods Inventory = 5 Ending FG Inventory = 40 mm to B (or? VS 3691; 5' M9 <10 Izmc (00 (com P»! E Rm =50 Q pa 3 J40 WC (“3 W l 5 (065 l 00 IVER ‘t 9' l") 5 Question 2 How much are Raw Material purchases and Direct Labor (DL) for the period if: Beginning Raw Materials Inventory = 10 mmmgmm=3o ,0 Hg Direct Materials = 80 1 7k x: \06’ \ ; Manufacturing Overhead = 45 _ filo ’ ‘l’ 9 Beginning WIP Inventory = 5 ":0 , 3 O Ending WIP Inventory = 15 Beginning Finished Goods Inventory = 35 5‘ Ending FG Inventory = 40 m COGS=140 + 80 k i 5 BN1? 5 t‘ mm \o I “ - km? ’37. 361} \4; EM — 30 b q A W fl ' amm 7? 1w : \o T:::::ij%k’ KMC sof Cost Allocation Example 1 Michael Angelo’s Gourmet Foods has 3 cost objects — lasagna, chicken parmesan, and calzones. Therefore they have 3 WIP inventory accounts: WIP —- lasagna, WIP — chicken parmesan, and WIP — calzones. As we learned above, what 3 items go into WIP? rm ,T/L, MOK So, calculating how much tomatoes, cheese, and direct labor go to each WIP account is easy because they are direct costs. But how do you allocate the following manufacturing overhead items (indirect costs) to the three cost objects? VP of Production’s salary $200,000 per year % Factory rent $400,000 per year _ Factory electricity $1,000,000 per year (6! I Ma1ntenance labor wages W, &.\S a (“A Q] 1 Voo/ coo F Answer: / You sum all the amounts (aka create a cost pool) and allocate the cost pool by a cost-allocation base Let’s say Michael Angelo’s groups all of the above indirect costs into one cost pool and uses a cost- allocation base of cases produced. The cases produced for the year are: Lasagna 5,000,000 cases Chicken Parmesan 4,000,000 cases Calzones 7,000,000 cases Total 16,000,000 cases What is the journal entry to record these manufacturing overhead items to the three cost objects? Step 1 - Calculate the Overhead Rate (also called the Allocation Rate): fijg qu CP’W Step 2 — Allocate the indirect costs (aka manufacturing overhead) Lasagna J9 x 900940 00 5 7 $457000 Chicken Parmesan . l§ 7t 9,06», 003 : (a (00, CW" Calzones .Ig x 71.x», aoa : |,o sq coo The journal entry is: (pva Laskjmx 750000 LJ£D ' C? (’00, 000 WP . Ck‘to'V/K Logo} 00° Various A/P and/or Wages Payable 2, 000 ooa / Example 2 Michael Angelo’s Gourmet Foods has 3 cost objects — lasagna, chicken parmesan, and calzones. Therefore they have 3 WIP inventory accounts: WIP — lasagna, WIP — chicken parmesan, and WIP — calzones. MAGF has the following manufacturing overhead items (indirect costs): VP of Production’s salary $200,000 per year (J7 l €92 Factory rent $400,000 per year Gap/6‘03 \‘800008 Factory electricity $1,000,000 per year gL M0 H Maintenance labor wages $800,000 per year MAGF has two cost pools. Cost pool 1 consists of the VP of Production’s salary and rent and the cost-allocation base is direct labor hours. Cost pool 2 consists of electricity and maintenance labor wages and the cost-allocation base is machine hours. Here is some additional informationflgmoo par Lew i 1,1 Ft” 110»)! Direct Labor Hours Used Machine Hours Used Lasagna 300,000 at. 690 : {(0900 400,000 xm, : womb Chicken Parmesan 500,000 x.&9 : 3°0on 100,000 “‘1, 1 17.0000 Calzones 200,000 Lac” ; Rocco 1,000,000 A .2, :: 1100000 Total 1,000,000 .—. 900000 1,500,000 : icooooo What is the journal entry to record these manufacturing overhead items to the three cost objects? («3117- Lasagna 0900a? an? 4,? 1100‘” (#119 ~ (it‘lan V510 ooo or Lo/P $90000 ...
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This note was uploaded on 06/07/2011 for the course ACC 312 taught by Professor Welsh during the Spring '08 term at University of Texas at Austin.

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Chapter%203%20Notes001 - Toma Tbmiinsofl THE UNIVERSITY OF...

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