Calculate Cost of Goods Manufactured © Dale R. Geiger 20111
Terminal Learning Objective Task: Calculate Cost of Goods Manufactured Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. Standard: with at least 80% accuracy. Explain terminology Differentiate between product and period costs Identify key elements in Inventory chain template Solve for missing variables in Inventory chain template © Dale R. Geiger 20112
Input Output What is the Cost of the Output? © Dale R. Geiger 20113
Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20114
Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20115
Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20116
Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20117
Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20118
Cost Accounting Terminology Manufacturing Overhead An AGGREGATION of indirect production- related costs Will be ASSIGNED to products or processes and become part of the cost of the product Conversion Costs Costs incurred to CONVERT raw materials into finished goods Examples: cost of machinery, labor, utilities © Dale R. Geiger 20119
Cost Accounting Terminology Manufacturing Overhead An AGGREGATION of indirect production- related costs Will be ASSIGNED to products or processes and become part of the cost of the product Conversion Costs Costs incurred to CONVERT raw materials into finished goods Examples: cost of machinery, labor, utilities © Dale R. Geiger
Cost Accounting Terminology Manufacturing Overhead An AGGREGATION of indirect production- related costs Will be ASSIGNED to products or processes and become part of the cost of the product Conversion Costs Costs incurred to CONVERT raw materials into finished goods Examples: cost of machinery, labor, utilities © Dale R. Geiger
Cost Accounting Terminology Manufacturing Overhead An AGGREGATION of indirect production- related costs Will be ASSIGNED to products or processes and become part of the cost of the product Conversion Costs Costs incurred to CONVERT raw materials into finished goods Examples: cost of machinery, labor, utilities © Dale R. Geiger
Cost Accounting Terminology Manufacturing Overhead An AGGREGATION of indirect production- related costs Will be ASSIGNED to products or processes and become part of the cost of the product Conversion Costs Costs incurred to CONVERT raw materials into finished goods Examples: cost of machinery, labor, utilities © Dale R. Geiger
Overhead Illustration Supervisor’s Salary Utilities Factory Depreciation General Supplies Assigned to Products 2000 700 250 100 Manufacturing Overhead 3050 © Dale R. Geiger
Check on Learning Costs that can be identified with a particular product or process are called An aggregation of indirect costs is called © Dale R. Geiger
Cost Accounting Terminology Product Costs All costs incurred in the PRODUCTION of goods Examples: Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Must be CAPITALIZED to the inventory account Will only be reported as an EXPENSE when the product is sold © Dale R. Geiger
Cost Accounting Terminology Product Costs All costs incurred in the PRODUCTION of goods Examples: Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Must be CAPITALIZED to the inventory account Will only be reported as an EXPENSE when the product is sold © Dale R. Geiger
Cost Accounting Terminology Product Costs All costs incurred in the PRODUCTION of goods Examples: Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Must be CAPITALIZED to the inventory account Will only be reported as an EXPENSE when the product is sold © Dale R. Geiger
Cost Accounting Terminology Product Costs All costs incurred in the PRODUCTION of goods Examples: Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Must be CAPITALIZED to the inventory account Will only be reported as an EXPENSE when the product is sold © Dale R. Geiger
Cost Accounting Terminology Product Costs All costs incurred in the PRODUCTION of goods Examples: Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Must be CAPITALIZED to the inventory account Will only be reported as an EXPENSE when the product is sold © Dale R. Geiger
Cost Accounting Terminology Period Costs Costs incurred in all activities other than the production of goods Examples: Administrative Salaries, Sales Commissions, Sales and Administrative Facilities Will be reported as expenses on the Income Statement in the period incurred May be allocated to products for managerial purposes © Dale R. Geiger
Check on Learning The cost of utilities for the manufacturing facility would be a product or a period cost? The cost of utilities for the retail sales outlet would be a product or a period cost? Period costs are reported on which financial statement? © Dale R. Geiger
Cost Classification Which are Direct Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are Direct Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are Indirect Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are Indirect Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are overhead? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are overhead? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are conversion costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are conversion costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are product costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Cost Classification Which are product costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger
Check on Learning Which category of cost includes all production costs except Direct Materials? © Dale R. Geiger
Types of Inventories Merchandise Inventory Includes goods purchased from a supplier and sold to the customer without alteration Examples? Raw Materials Inventory Includes purchase cost of Direct Materials held in inventory Examples? © Dale R. Geiger
Types of Inventories Work in Process Inventory Includes Direct Materials costs and capitalized labor and overhead costs of unfinished goods Examples? Finished Goods Inventory Includes Cost of Goods Manufactured by the seller Examples? © Dale R. Geiger
Overhead The Inventory Chain © Dale R. Geiger
Overhead The Inventory Chain © Dale R. Geiger
Overhead The Inventory Chain © Dale R. Geiger
Overhead The Inventory Chain © Dale R. Geiger
Overhead The Inventory Chain © Dale R. Geiger
The Inventory Chain Overhead © Dale R. Geiger
The Inventory Chain Overhead © Dale R. Geiger
The Inventory Chain Overhead © Dale R. Geiger
Input-Output Equation Input-Output Equation Beginning + Input – Output = End If you take more water out of the bucket than you put in, what happens to the level in the bucket? © Dale R. Geiger
Check on Learning What are the key variables to the Work in Process account? What is the input to the raw materials account? © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Using the Inventory Chain © Dale R. Geiger
Practical Exercise © Dale R. Geiger
Accounting for Manufacturing Spreadsheet Enter the information given in the exercise above into the white blanks in the T- accounts © Dale R. Geiger
Accounting for Manufacturing Spreadsheet The “Results” tab displays the calculations using the given data © Dale R. Geiger
Accounting for Manufacturing Spreadsheet “Solve” indicates that the value displayed has been calculated using the information given in the Data Input tab. © Dale R. Geiger