10-12 inormation relevance - Objectives for today &...

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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 1 Objectives for today & next class I. Product costs for financial reporting vs. decision-making more cost accounting concepts details of absorption costing •v a r i a b l e c o s t i n g II. Costs for decision-making steps in the process information needed III. Pitfalls to avoid when identifying relevant information IV. Identifying relevant information for decisions
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 2 I. Product costs for financial reporting vs. decision-making
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 3 Product costs and cost accounting ± Cost accounting: – The part of an organization's management control systems (remember these from Part I?!) that measures costs for the purposes of: • financial reporting • management decision-making ± The information needed for these purposes can differ, as we'll see using "products" as our cost objective
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 4 Cost accounting - Accumulation and allocation A cost accounting system includes two processes: 1) Cost accumulation collecting costs using some "natural" classification system 2) Cost allocation 3) tracing and reassigning accumulated costs to one or more cost objectives (remember these?)
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 5 Cost accounting - Accumulation and allocation (continued) In general, all organizations accumulate costs for products in the same way, using the same "natural" classification system. ... ...because for financial reporting, costs for products must be allocated the same way absorption costing is required by GAAP
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 6 Cost accounting - Accumulation and allocation (continued) However, for decision-making, product costs allocated using absorption costing are not always very useful! Managers are usually more interested in product costs allocated based on cost behavior So what do managers need to do when they want product costs for decision- making?
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 7 Cost accounting - Accumulation and allocation (continued) They start with product costs from the cost accounting system computed using absorption costing And make adjustments to those costs for decision-making they convert them to variable costing
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 8 Product cost accumulation with absorption costing ± The "natural" classification system used to meet GAAP requirements is the same for all organizations that produce and/or resell tangible products ± It is based on the distinction between product costs and period costs
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 9 Product cost accumulation with absorption costing (continued) ± product costs – costs that are identified with products produced or purchased for resale – included in inventory accounts on the balance sheet for manufacturers, this includes all costs of production (often called "manufacturing costs") for wholesalers and retailers, this includes all costs of products purchased for resale
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ACCY 302 (Farrell) Spring 2009, Classes 10 & 12 10
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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10-12 inormation relevance - Objectives for today &...

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