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Chapter _2 - PowerPoint - Chapter 2 Classifying Costs...

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Unformatted text preview: Chapter 2 Classifying Costs ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 1 ­ Assigning Costs to Cost Objects LO1 Classify costs by cost objects, and distinguish between direct and indirect costs. • A cost object is any activity or item for which is a separate measurement of costs is desired. Activity Product Service Project Geographic region Department ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 2 LO1 Assigning Costs to Cost Objects Direct costs Indirect costs (common costs) ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 3 Product Costs LO2 Distinguish between product costs and period costs, and contrast their accounting treatment. • Product costs are the costs associated Product with making the product available and ready to sell. • Product costs are inventoriable costs. Product ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 4 LO2 Period Costs Period costs are not considered product costs. Selling Costs Administrative Costs ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 5 Product Cost Identification for Product Merchandising Firms Merchandising LO3 Explain the differences between product cost for a merchandiser and for a manufacturer. • Product cost includes the cost of the merchandise, Product freight costs, and any other costs incurred to get the product ready to sell. the ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 6 LO3 The Flow of Product Costs Other costs to prepare merchandise for sale Invoice cost of merchandise Freight-in Merchandise Inventory Cost of Goods Sold (Income Statement) Ending Inventory (Balance Sheet) Goods sold Goods not yet sold ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 7 LO3 Cost of Goods Sold Schedule JASON’S SUPPLY COMPANY Cost of Goods Sold Schedule For the Year Ending December 31, 2009 + = – = Beginning inventory, Jan. 1, 2005 Purchases during 2005 Goods available for sale in 2005 Ending inventory, Dec. 31, 2005 Cost of goods sold for 2005 $ 23,000 300,000 $323,000 30,000 $293,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 8 LO3 Product Cost Identification for Product Manufacturing Firms Manufacturing Direct material cost Direct labor cost Manufacturing overhead ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 9 Prime Cost and Conversion Cost LO3 Direct material cost Direct labor cost Prime cost Manufacturing overhead cost Conversion cost ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 10 Inventory Classifications LO4 Describe the components of the costs included in each of the three types of inventory in a manufacturing operation. • Raw materials inventory or stores Raw • Work-in-process inventory Work-in-process • Finished goods inventory Finished ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 11 LO4 Manufacturing Overhead or Burden • Indirect material Indirect • Indirect labor Indirect • Other overhead costs Other ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 12 LO4 The Flow of Product Costs – Manufacturing Company + = – = Beginning direct material inventory Purchases Direct materials available for use Ending inventory Direct materials used ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 13 LO4 The Flow of Product Costs – Manufacturing Company Raw materials purchases Raw materials inventory Ending raw materials inventory Balance sheet Direct materials cost Manufacturing overhead cost Indirect materials Work-in-process inventory Direct materials ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 14 LO4 The Flow of Product Costs – Manufacturing Company Direct materials cost Direct labor cost Manufacturing overhead cost ● Indirect materials ● Indirect labor ● Factory rent ● Depreciation ● Factory taxes ● Factory insurance ● Other factory costs Work-in-process inventory ● Direct materials ● Direct labor ● Manufacturing overhead ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 15 LO4 The Flow of Product Costs – Manufacturing Company Work-in-process inventory ● Direct materials ● Direct labor ● Manufacturing overhead Ending work-in-process inventory Finished goods inventory Balance sheet ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 16 LO4 The Flow of Product Costs – Manufacturing Company Finished goods inventory Ending finished goods inventory Cost of goods sold Balance sheet Income statement ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 17 Cost of Goods Manufactured Cost Schedule Schedule LO5 Calculate cost of goods manufactured and cost of goods sold. ZHANG MANUFACTURING, INC. Cost of Goods Manufactured Schedule For the Year Ended December 31, 2009 Direct Materials Section Beginning inventory, Jan. 1, 2009 Inventory purchases during 2009 Materials available during 2009 Ending inventory, Dec. 31, 2009 Direct materials used during 2009 $ 13,000 400,000 $413,000 –20,000 $393,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 18 LO5 Cost of Goods Manufactured Cost Schedule Schedule ZHANG MANUFACTURING, INC. Cost of Goods Manufactured Schedule For the Year Ended December 31, 2009 Direct Labor Section Direct labor during 2009 $220,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 19 LO5 Cost of Goods Manufactured Cost Schedule Schedule ZHANG MANUFACTURING, INC. Cost of Goods Manufactured Schedule For the Year Ended December 31, 2009 Manufacturing Overhead Section Indirect materials Indirect labor Factory rent Other Total 2009 manufacturing overhead $ 5,000 20,000 144,000 344,000 $513,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 20 LO5 Cost of Goods Manufactured Cost Schedule Schedule ZHANG MANUFACTURING, INC. Cost of Goods Manufactured Schedule For the Year Ended December 31, 2009 Manufacturing Costs Summary Direct materials used during 2009 $ 393,000 Direct labor used during 2009 220,000 Total manufacturing overhead 513,000 Manufacturing cost for current period $1,126,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 21 LO5 Cost of Goods Manufactured Cost Schedule Schedule ZHANG MANUFACTURING, INC. Cost of Goods Manufactured Schedule For the Year Ended December 31, 2009 Cost Summary and Work-in-Process Section Manufacturing cost for current period $1,126,000 Beginning WIP, (01/01/09) 41,000 Cost of goods to be finished $1,167,000 Less: Ending WIP, (12/31/09) 65,000 Cost of goods manufactured in 2009 $1,102,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 22 LO5 Cost of Goods Manufactured Cost Schedule Schedule ZHANG MANUFACTURING, INC. Cost of Goods Sold Schedule For the Year Ended December 31, 2009 Beginning finished goods inventory $ 70,000 Cost of goods manufactured in 2009 1,102,000 Goods available for sale in 2009 $1,172,000 Less: Finished goods inventory 28,000 Cost of goods sold for 2009 $1,144,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 23 Product Cost Identification for Service Firms LO6 Describe the components of the cost of services provided by a service firm. • Service products lack physical substance. Service • Materials are incidental supplies. Materials • Labor costs are high. Labor • Overhead costs are similar to those for a manufacturer. Overhead ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 24 LO6 The Flow of Service Costs Supplies inventory Ending supplies inventory Direct supplies cost Direct labor cost Overhead cost ● Indirect supplies ● Indirect labor ● Office rent ● Depreciation ● Office taxes ● Office insurance ● Other indirect costs Balance sheet ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones Cost of services provided Income statement 2 ­ 25 LO6 Cost of Services Schedule Direct labor cost Overhead cost Direct supplies cost Cost of services provided $ 940,000 70,000 20,000 $1,030,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 26 LO6 Hybrid Firms • Companies that generate significant Companies revenues from both services and products are known as hybrid firms. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 27 Recording Manufacturing Costs LO7 Prepare basic journal entries for a manufacturer. • Transaction 1: Transaction On January 3, transferred $70,000 of direct material to production. Jan 2 Raw Materials Inventory 90,000 Accounts Payable To record the purchase of raw material 90,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 28 LO7 Recording Manufacturing Costs • Transaction 2: Transaction On January 3, transferred $70,000 of direct material to production. Jan 3 Work-In-Process Inventory 70,000 Raw Material Inventory 70,000 To record the transfer of direct material to production ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 29 LO7 Recording Manufacturing Costs • Transaction 3: Transaction On January 31, paid $80,000 for direct labor cost incurred during January 2009 Jan 31 Work-In-Process Inventory 80,000 Cash 80,000 To record wages paid for direct labor in January ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 30 LO7 Recording Manufacturing Costs • Transaction 4: Transaction In January, paid $10,000 of overhead costs in cash and balance of $100,000 on account. Jan 31 Work-In-Process Inventory 110,000 Cash Accounts Payable To record overhead for January 10,000 100,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 31 LO7 Recording Manufacturing Costs • Transaction 5: Transaction On January 31, transferred $230,000 of goods from work in process to finished goods. Jan 31 Finished Goods Inventory 230,000 Work-in-Process Inventory 230,000 To transfer completed goods from production to finished goods ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 32 LO7 Recording Manufacturing Costs • Transaction 6: Transaction On January 31, sold finished goods costing $210,000 to manufacture for $300,000. Jan 31 Accounts Receivable 300,000 Sales 300,000 Cost of Goods Sold 210,000 Finished Goods 210,000 To record sales on account and cost of goods sold. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 33 LO7 Recording Manufacturing Costs Work-in-Process Inventory 1/03/09 70,000 230,000 1/31/09 230,000 1/31/09 1/31/09 80,000 1/31/09 110,000 Balance 30,000 Accounts Receivable 1/31/09 300,000 Finished Goods Inventory 1/31/09 230,000 210,000 1/31/09 1/31/09 230,000 210,000 1/31/09 Balance 20,000 Balance 20,000 Cost of Goods Sold 1/31/09 210,000 1/31/09 210,000 Sales 300,000 1/31/09 300,000 1/31/09 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 34 End of Chapter 2 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting , 3e Werner/Jones 2 ­ 35 ­ ...
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