Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4

Chapter 11 Fundamental Managerial Accounting Concepts

Chapter 113 Chapter 11 Learning Objectives Differentiate between financial and managerial accounting. Distinguish between product and period costs; direct and indirect costs; controllable and noncontrollable costs; and variable, fixed, and mixed costs. Discuss the different costing systems and valuation methods used by organizations. Calculate and use a predetermined overhead rate. Classify product costs as direct material, direct labor, and overhead. Record the flow of costs through the accounting system. Prepare a statement of cost of goods manufactured. Identify cost flows in a service company.

Chapter 114 External Users Rigid Rules Historical Perspective Aggregate Information Quantitative Information Monthly/Annually Financial or Managerial? Internal Users Flexible Format Future Perspective Detailed Information Quantitative and Qualitative information As needed

Chapter 115 Primary Differences between Financial and Managerial Accounting

Chapter 116 Managerial Accounting is designed to: --provide information to internal parties for planning and controlling operations; --estimate an organization's product or service cost. Managerial Accounting and

Chapter 117 Product or Period Cost? Product Costs relate to the items that generate organizational revenues : Inventory Direct Materials Direct Labor Factory Overhead Period costs relate to an organization's selling and administrative functions: Certain Salaries Insurance Freight Out Administrative Overhead (become part of COGS) (are expensed in period consumed)

Chapter 118 Which of the following would be classified as a product cost? a. Wood used to manufacture furniture b. Wages for sales staff c. Advertising expense d. Office supplies expense

Chapter 119 Which of the following would be classified as a product cost? a. Wood used to manufacture furniture b. Wages for sales staff c. Advertising expense d. Office supplies expense

Chapter 1110 Which of the following would be classified as a period cost? a. Wood used to manufacture furniture b. Janitorial supplies in the factory c. Wages for direct laborers in the factory d. Office supplies expense

Chapter 1111 Which of the following would be classified as a period cost? a. Wood used to manufacture furniture b. Janitorial supplies in the factory c. Wages for direct laborers in the factory d. Office supplies expense

Chapter 1112 Direct and Indirect Costs A direct cost is one that is clearly and easily traceable to, and a monetarily important part of, a specified cost object. An indirect cost is one that is not clearly and easily traceable, or is not a monetarily important part of, a specified cost object.

Chapter 1113 Direct versus Indirect Costs

Chapter 1114 Which of the following would be classified as a direct cost? a. Oil used to lubricate machinery b. Wages for factory janitorial staff c. Wages for assembly line staff d. Factory supplies

Chapter 1115 Which of the following would be classified as a direct cost? a. Oil used to lubricate machinery b. Wages for factory janitorial staff c. Wages for assembly line staff d. Factory supplies

Chapter 1116 Which of the following would be classified as a product cost and a direct cost? a. Oil used to lubricate machinery b. Wages for factory janitorial staff c. Wages for assembly line staff d. Factory supplies

Chapter 1117 Which of the following would be classified as a product cost and a direct cost? a. Oil used to lubricate machinery b. Wages for factory janitorial staff c. Wages for assembly line staff d. Factory supplies

Chapter 1118 Which of the following would be classified as a product cost and an indirect cost? a. Oil used to lubricate machinery b. Cost of fabric used in the apparel business c. Wages for assembly line staff d. Advertising expense

Chapter 1119 Which of the following would be classified as a product cost and an indirect cost? a. Oil used to lubricate machinery b. Cost of fabric used in the apparel business c. Wages for assembly line staff d. Advertising expense

Chapter 1120 Controllable & Noncontrollable Costs Any cost that a manager can authorize or directly influence in terms of dollar size is a controllable cost.

Chapter 1121 Variable Costs A variable cost changes in total in direct proportion to changes in activity. Total Variable Costs = Variable Cost per unit × Units of Activity Examples include: Direct Materials, Direct Labor, Some Overhead

Chapter 1122 Fixed Costs A fixed cost remains constant in total with changes in activity, within a Relevant Range. Examples include: factory depreciation, insurance, property taxes. Mixed costs have both a fixed and variable component. Total Costs = ( Variable Cost per unit × Units of Activity )+)+ Fixed Costs

Chapter 1123 High-Low Method of Separating Mixed Costs

Chapter 1124 Manufacturing Costs Direct Materials: any readily clearly identifiable and conveniently traceable item that becomes a part of a manufactured product; the cost of a direct material must be monetarily significant to total product cost. Direct Labor: the people who manufacture company products. Overhead: any cost incurred in the manufacturing area that cannot or is not directly traced a product. Overhead consists of indirect labor, indirect materials, and other indirect costs that cannot be associated with a particular product.

Chapter 1125 Summary of Costs

Chapter 1126 Inventory Costing Systems Manufacturers that are producing goods in relatively small quantities, often to customer specifications, use a job order costing system. Service companies will generally use a job order costing system. Manufacturers that produce mass quantities of similar goods (such as breakfast cereals, gasoline, or dog food) use a process costing system to accumulate costs. Because the goods are all the same and may flow through many production departments, costs are accumulated by batches of goods.

Chapter 1127 Inventory Valuation Methods In an actual cost system, the actual costs of materials, labor, and overhead are used to compute product cost. In a normal cost system, the actual costs of materials and labor as well as an estimated cost for overhead are used to compute product cost. In a standard cost system, estimated "norms" for materials, labor, and overhead are used to compute product costs.

Chapter 1128 Flow of Product Costs

Chapter 1129 CHI Production Entries

Chapter 1130 CHI Production Entries Continued

Chapter 1131 Selected CHI T-Accounts

Chapter 1132 Under applied and Overapplied Overhead Calculations for CHI

Chapter 1133 Overhead T-Accounts After Posting Entry to Close Overhead

Chapter 1134 Schedule of Cost of Goods Manufactured Statement

Chapter 1135 Schedule of Cost of Goods Manufactured Example

Chapter 1136 Conclusions  There are significant differences between managerial and financial accounting.  Costs may take many forms – product, period, direct, indirect, controllable, noncontrollable, fixed, variable, and mixed.  Job order and process costing systems are used to accumulate costs.  There are actual, normal, and standard costing systems.

Chapter 1137 Line Company reports the following information for the year ended December 31, 2010: Total applied overhead $59,000 Direct labor 95,000 Jan. 1, 2010 raw materials 12,000 Dec. 31, 2010 raw materials 14,500 Raw materials purchases 63,200 Dec. 31, 2010 work in process 14,300 Jan. 1, 2010 work in process 12,500 Prepare a schedule of cost of goods manufactured for Line Co.

Chapter 1138 Line Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 2010 January 1, 2010 work in process $ 12,500 Manufacturing costs for the period January 1, 2010 raw materials$12,000 Raw material purchases 63,200 Raw materials available 75,200 December 31, 2010 raw materials 14,500 Raw materials used 60,700 Direct labor 95,000 Total factory overhead applied 59,000 Total manufacturing costs 214,700 Total costs to account for 227,200 Dec. 31, 2010 work in process 14,300 Cost of goods manufactured$212,900

Chapter 1139 Line Company reports the following information for the year ended December 31, 2010: Cost of goods manufactured $212,900 Direct labor 95,000 Jan. 1, 2010 raw materials 12,000 Dec. 31, 2010 raw materials 14,500 Jan. 1, 2010 finished goods 17,800 Dec. 31, 2010 work in process 14,300 Dec. 31, 2010 finished goods 16,900 Prepare a schedule of cost of goods sold for Line Co.

Chapter 1140 Line Company Schedule of Cost of Goods Sold For Year Ended December 31, 2010 January 1, 2010 finished goods $ 17,800 Cost of goods manufactured 212,900 Cost of goods available for sale 230,700 Dec. 31, 2010 finished goods 16,900 Cost of goods sold$213,800

Chapter 1141 THE END!