1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 1: Introduction to Cost Accounting Cost Accounting: Foundations & Evolutions, 8e Kinney and Raiborn

2. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Accountants Financial accountants provide information to external parties  Investors  Creditors  Regulators Managerial accountants provide information to internal users  Managers Cost accountants provide information to both internal and external users  Product cost information

3. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Accounting Differences Financial External focus Historical Quantitative Monetary Verifiable GAAP Managerial Internal focus Current/projected Quantitative/qualitative Monetary and nonmonetary Timely/reasonable estimate Benefits exceed costs

4. Relationship of Financial, Management, and Cost Accounting FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING COST ACCOUNTING Sub set of each © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. Organizational Strategy Five factors core competencies organizational structure management style and organizational culture organizational constraints environmental constraints

6. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Organizational Strategies Core competency—critical function or activity providing a competitive advantage Cost leadership strategy—undercut competitor prices Product differentiation strategy—superior quality products or unique services sold at a premium

7. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Organizational Structure Distribution of authority and responsibility in an organization  Authority — right to use resources to accomplish a task or achieve an objective  Responsibility — obligation to accomplish a task or achieve an objective

8. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Value Chain A set of value-adding functions and processes that converts inputs into products/services  Research and Development  Product Design  Inbound Supply  Production  Marketing  Outbound Distribution  Product and Customer Service Communicate strategy to all members of the value chain

9. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Balanced Scorecard  Learning and Growth  The organization’s human and intellectual capital  Internal Business Processes  Things to do well to meet customer needs and expectations  Customer Value  How well the organization is doing relative to important customer criteria  Financial  Address stockholders’/stakeholders’ concerns about profitability and organizational growth

10. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 2: Cost Terminology and Cost Behaviors Cost Accounting: Foundations & Evolutions, 8e Kinney and Raiborn

11. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Categories Association with cost object  Direct—traceable to a cost object –Direct material and Direct labor  Indirect—not conveniently or practically traceable to a cost object treated as overhead allocated

12. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Categories Association with cost object Reaction to changes in activity  Variable  Fixed - Straight –line depreciation  Mixed  Step (stair steps or intervals)  We only use variable and fixed for analysis. Relevant Range — normal operating range, valid patterns

13. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Total and Unit Cost Behavior VERY IMPORTANT Varies in direct proportion to changes in activity Remains constant throughout the relevant range Remains constant throughout the relevant range Varies inversely with changes in activity throughout the relevant range Variable Cost Fixed Cost Total CostUnit Cost

14. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Categories Ex 2-21 Classification on the financial statements  Unexpired—balance sheet assets- FG Inv  Expired—income statement expenses - CGS  Product—inventoriable costs Prime—direct material and direct labor (VC) Conversion—direct labor and overhead Product costs are on the BS before sale Product costs are on the IS as cost of goods sold when sold  Period—expensed in period incurred

15. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Product Costs – VERY IMPORTANT Direct material  Goes into the product, significant cost Direct labor  Labor cost of employees who work directly on the product Overhead  Indirect production cost  All other costs in the plant

16. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Period Costs – All costs outside the mfg. plant, Account title = expense Selling and administrative costs Distribution costs  Cost to warehouse, transport, and/or deliver a product or service  Major impact on managerial decision making

17. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Balance Sheet Income Statement Cost Accumulation in a Manufacturing Company Ex 2-34 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18. Product Cost Behavior Direct MaterialVariable Direct LaborVariable OverheadVariable, fixed, (or mixed)

19. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Overhead Cost Allocation Assign indirect costs to one or more cost objects Allocation process should be rational and systematic

20. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Product Cost Direct Materials Direct Labor Overhead Actual Cost System Actual Normal Cost System Actual Predetermined Overhead Rate Allocating Overhead Actual vs. Normal © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21. Questions What is the difference between a fixed and variable cost? What are the three components of product cost? What are the three inventory accounts for a manufacturing company?

22. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Simple Raw Materials Spreadsheet (Use for quiz) Beginning Raw Materials Inv. Raw Materials Purchased Raw Materials Available Less: Ending Raw Materials Inventory Raw Materials Used 3000 35000 38000 6500 ------------- 31500

23. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Classify each of the following costs incurred in manufacturing animated, lighted reindeer as variable (V), fixed (F), or mixed (M) (using # of units produced as the activity measure). Also indicate whether the cost is direct material (DM), direct labor (DL), or overhead (OH). Cost Behavior and Classification Ex 2-20 Plastic-coated wireV, DM Light bulbsV, DM or V, OH MotorsV, DM SL Depreciation on machineryF, OH Machine operator wagesV, DL Machine operator overtimeV, OH Factory supervisor’s salaryF, OH Quality control inspector salaryF, OH ElectricityM, OH 23

24. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex 2-34 – Find DM placed into production. (No indirect materials) DM Debit credit BB 30000 given pur 1182000 given trans to WIP ?Compute Ending 42000 given Formula: +bb+pur-end bal. = trans to WIP

25. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex 2-34 Template Step 4 Work-in-process debit credit Beg Bal given Direct Materials ? from DM Trans to FG ?see FG above DL & OH ? Compute 1,300,000 DL= (DL+OH)/3.26 Ending Bal 22500.25 X BB