2. 1 Khalid Aziz--0322-3385752 Cost Management Systems and Activity-Based Costing Khalid Aziz ACCOUNTING OF ICMAP, CA..B,C & D, PIPFA, BBA, MBA, M.COM, B.COM 0322-3385752

3. Khalid Aziz--0322-33857522 JOIN KHALID AZIZ COACHING CLASSES OF CA MODULE B & D. FA, ECONOMICS & COST ACCOUNTING. CONTACT NOW. 0322-3385752

4. Khalid Aziz--0322-33857523 JOIN KHALID AZIZ FRESH CLASSES OF B.COM 1 & 2 ALL IMPORTANT SUBJECTS COMPLETION OF SYLLABUS JOIN NOW

5. Khalid Aziz--0322-33857524 JOIN KHALID AZIZ ACCOUNTING(FINANCIAL & COST) OF ICMAP STAGE 1,2,3,4 (NEW CLASSES) CA..MODULE B,C,D PIPFA (FOUNDATION,INTERMEDIATE,FINAL) ACCA-F1,F2,F3 BBA,MBA B.COM(FRESH),M.COM MA-ECONOMICS..O/A LEVELS KHALID AZIZ…..0322-3385752 http://finance.groups.yahoo.com/group/cost- accountantsACCOUNTING(FINANCIAL & COST) OF ICMAP STAGE 1,2,3,4 (NEW CLASSES) CA..MODULE B,C,D PIPFA (FOUNDATION,INTERMEDIATE,FINAL) ACCA-F1,F2,F3 BBA,MBA B.COM(FRESH),M.COM MA-ECONOMICS..O/A LEVELS KHALID AZIZ…..0322-3385752 http://finance.groups.yahoo.com/group/cost- accountants

6. Khalid Aziz--0322-33857525 Learning Objective 1 Describe the purposes of cost management systems.

7. Khalid Aziz--0322-33857526 Cost Management System A cost-management system (CMS) is a collection of tools and techniques that identifies how managements decisions affect costs.

8. Khalid Aziz--0322-33857527 What is Cost Accounting? Cost accounting is that part of the accounting system that measures costs for the purposes of management decision making and financial reporting.

9. Khalid Aziz--0322-33857528 Learning Objective 2 Explain the relationships among cost, cost objective, cost accumulation, and cost allocation.

10. Khalid Aziz--0322-33857529 Cost Accounting System Cost Accumulation Collecting costs by some natural classification such as materials or labor Cost Allocation Tracing costs to one or more cost objectives

11. Khalid Aziz--0322-338575210 Cost Accounting System MACHINING DEPARTMENT ACTIVITY FINISHING DEPARTMENT ACTIVITY RAW MATERIAL COSTS (METALS CABINETS DESKS TABLES Cost Accumulation Cost Allocation to Cost Objects: 1. Departments 2. Activities 3. Products

12. Khalid Aziz--0322-338575211 Cost A cost may be defined as a sacrifice or giving up of resources for a particular purpose. Costs are frequently measured by the monetary units that must be paid for goods and services.

13. Khalid Aziz--0322-338575212 Cost Objective What is a cost object or cost objective? It is anything for which a separate measurement of costs is desired.

14. Khalid Aziz--0322-338575213 Learning Objective 3 Distinguish among direct, indirect, and unallocated costs.

15. Khalid Aziz--0322-338575214 Direct Costs Direct costs can be identified specifically and exclusively with a given cost objective in an economically feasible way. What are direct costs?

16. Khalid Aziz--0322-338575215 Indirect Costs Indirect costs cannot be identified specifically and exclusively with a given cost objective in an economically feasible way. What are indirect costs?

17. Khalid Aziz--0322-338575216 What Distinguishes Direct and Indirect Costs? Managers prefer to classify costs as direct rather than indirect whenever it is economically feasible or cost effective. Other factors also influence whether a cost is considered direct or indirect. The key is the particular cost objective.

18. Khalid Aziz--0322-338575217 Categories of Manufacturing Costs Any raw material, labor, or other input used by any organization could, in theory, be identified as a direct or indirect cost depending on the cost objective.

19. Khalid Aziz--0322-338575218 JOIN KHALID AZIZ ACCOUNTING(FINANCIAL & COST) OF ICMAP STAGE 1,2,3,4 (NEW CLASSES) CA..MODULE B,C,D PIPFA (FOUNDATION,INTERMEDIATE,FINAL) ACCA-F1,F2,F3 BBA,MBA B.COM(FRESH),M.COM MA-ECONOMICS..O/A LEVELS KHALID AZIZ…..0322-3385752 http://finance.groups.yahoo.com/group/cost- accountantsACCOUNTING(FINANCIAL & COST) OF ICMAP STAGE 1,2,3,4 (NEW CLASSES) CA..MODULE B,C,D PIPFA (FOUNDATION,INTERMEDIATE,FINAL) ACCA-F1,F2,F3 BBA,MBA B.COM(FRESH),M.COM MA-ECONOMICS..O/A LEVELS KHALID AZIZ…..0322-3385752 http://finance.groups.yahoo.com/group/cost- accountants

20. Khalid Aziz--0322-338575219 Categories of Manufacturing Costs All costs which are eventually allocated to products are classified as either… 1direct materials, 2direct labor, or 3indirect manufacturing.

21. Khalid Aziz--0322-338575220 Direct Material Costs... –include the acquisition costs of all materials that are physically identified as a part of the manufactured goods and that may be traced to the manufactured goods in an economically feasible way.

22. Khalid Aziz--0322-338575221 Direct Labor Costs... –include the wages of all labor that can be traced specifically and exclusively to the manufactured goods in an economically feasible way.

23. Khalid Aziz--0322-338575222 Indirect Manufacturing Costs... –or factory overhead, include all costs associated with the manufacturing process that cannot be traced to the manufactured goods in an economically feasible way.

24. Khalid Aziz--0322-338575223 Product Costs... –are costs identified with goods produced or purchased for resale. Product costs are initially identified as part of the inventory on hand. These costs, inventoriable costs, become expenses (in the form of cost of goods sold) only when the inventory is sold.

25. Khalid Aziz--0322-338575224 Period Costs... –are costs that are deducted as expenses during the current period without going through an inventory stage.

26. Khalid Aziz--0322-338575225 Period or Product Costs In merchandising accounting, insurance, depreciation, and wages are period costs (expenses of the current period). In manufacturing accounting, many of these items are related to production activities and thus, as indirect manufacturing, are product costs.

27. Khalid Aziz--0322-338575226 Period Costs – Merchandising and Manufacturing In both merchandising and manufacturing accounting, selling and general administrative costs are period costs.

28. Khalid Aziz--0322-338575227 Learning Objective 4 Explain how the financial statements of merchandisers and manufacturers differ because of the types of goods they sell.

29. Khalid Aziz--0322-338575228 Financial Statement Presentation – Merchandising Companies Merchandise Inventory Merchandise Inventory Sales Cost of Goods Sold (an expense) Cost of Goods Sold (an expense) Selling and Administrative Expenses Selling and Administrative Expenses Balance Sheet Income Statement – Equals Gross Margin Equals Operating Income – Expiration Period Costs

30. Khalid Aziz--0322-338575229 Financial Statement Presentation – Manufacturing Companies Finished Goods Inventory Finished Goods Inventory Sales Cost of Goods Sold (an expense) Cost of Goods Sold (an expense) Selling and Administrative Expenses Selling and Administrative Expenses Balance Sheet Income Statement – Equals Gross Margin Equals Operating Income – Expiration Period Costs Direct Material Inventory Direct Material Inventory Work-in- Process Inventory Work-in- Process Inventory

31. Khalid Aziz--0322-338575230 Costs and Income Statements On income statements, the detailed reporting of selling and administrative expenses is typically the same for manufacturing and merchandising organizations, but the cost of goods sold is different.

32. Khalid Aziz--0322-338575231 Cost of Goods Sold for a Manufacturer The manufacturers cost of goods produced and then sold is usually composed of the three major categories of cost: 1Direct materials 2Direct labor 3Indirect manufacturing

33. Khalid Aziz--0322-338575232 Cost of Goods Sold for a Retailer or Wholesaler The merchandisers cost of goods sold is usually composed of the purchase cost of items, including freight-in, that are acquired and then resold.

34. Khalid Aziz--0322-338575233 Learning Objective 5 Understand the main differences between traditional and activity-based costing systems and why ABC systems provide value to managers.

35. Khalid Aziz--0322-338575234 Traditional Cost System All Unallocated Value Chain Costs Direct Material Resource Direct Labor Resource All Indirect Resources Products Direct Trace Direct Trace Cost Driver Unallocated

36. Khalid Aziz--0322-338575235 Two-Stage Activity-Based Cost System All Unallocated Value Chain Costs Direct Material Resource Direct Labor Resource Indirect Resource A Products Direct Trace Direct Trace Activity 1 Unallocated Other Direct Resources Indirect Resource Z Activity 10 %% Cost Driver Cost Driver

37. Khalid Aziz--0322-338575236 Activity-Based Costing Understanding the relationships among activities, resources, costs, and cost drivers is the key to understanding ABC and how ABC facilitates managers understanding of operations.

38. Khalid Aziz--0322-338575237 Example of Activities and Cost Drivers: Activities: Account billing Bill verification Account iniquity Correspondence Cost Drivers: No. of lines No. of accounts No. of labor hours No. of letters Activity-Based Costing

39. Khalid Aziz--0322-338575238 Learning Objective 6 Identify the steps involved in the design and implementation of an activity-based costing system.

40. Khalid Aziz--0322-338575239 Designing and Implementing an Activity-Based Costing System Determine cost of activities, resources, and related cost drivers. Develop a process-based map representing the flow of activities, resources, and their interrelationships. Step 1 Step 2

41. Khalid Aziz--0322-338575240 Designing and Implementing an Activity-Based Costing System Collect relevant data concerning costs and the physical flow of the cost-driver units among resources and activities. Step 3

42. Khalid Aziz--0322-338575241 Designing and Implementing an Activity-Based Costing System Calculate and interpret the new activity-based information. Using an activity-based costing system to improve the operations of an organization is activity-based management (ABM). Step 4

43. Khalid Aziz--0322-338575242 Activity-Based Management Activity-based management aims to improve the value received by customers and to improve profits by identifying opportunities for improvements in strategy and operations.

44. Khalid Aziz--0322-338575243 Activity-Based Management A value-added cost is the cost of an activity that cannot be eliminated without affecting a products value to the customer. In contrast, non-value-added costs are costs that can be eliminated without affecting a products value to the customer.

45. Khalid Aziz--0322-338575244 Learning Objective 7 Use activity-based cost information to improve the operations of an organization.

46. Khalid Aziz--0322-338575245 Using ABC Information Activity-based management… provides costs of value-added and non-value-added activities. improves managers understanding of operations.

47. Khalid Aziz--0322-338575246 Learning Objective 8 Understand cost accountings role in a companys improvement efforts across the value chain.

48. Khalid Aziz--0322-338575247 Cost Accounting and the Value Chain A good cost accounting system is critical to all value-chain functions from research and development through customer service.

49. Khalid Aziz--0322-338575248 JOIN KHALID AZIZ ACCOUNTING(FINANCIAL & COST) OF ICMAP STAGE 1,2,3,4 (NEW CLASSES) CA..MODULE B,C,D PIPFA (FOUNDATION,INTERMEDIATE,FINAL) ACCA-F1,F2,F3 BBA,MBA B.COM(FRESH),M.COM MA-ECONOMICS..O/A LEVELS KHALID AZIZ…..0322-3385752 http://finance.groups.yahoo.com/group/cost- accountantsACCOUNTING(FINANCIAL & COST) OF ICMAP STAGE 1,2,3,4 (NEW CLASSES) CA..MODULE B,C,D PIPFA (FOUNDATION,INTERMEDIATE,FINAL) ACCA-F1,F2,F3 BBA,MBA B.COM(FRESH),M.COM MA-ECONOMICS..O/A LEVELS KHALID AZIZ…..0322-3385752 http://finance.groups.yahoo.com/group/cost- accountants