Acctg presentation chap 19 bam disimulacion

1,134 views

Published on

Accounting Rules

Published in: Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,134
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
53
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Acctg presentation chap 19 bam disimulacion

  1. 1. CHAPTER 19: Standard Costs, Variable Costing Systems, Quality Costs and Joint Costs MBA 206 Maria Arlene (Bam) T. Disimulacion
  2. 2. STANDARD COST
  3. 3. STANDARD COST <ul><li>Measure of how much an item of cost should be </li></ul><ul><li>The sum of standard costs of the inputs – direct material, direct labor and overhead – is the standard cost of one unit of output </li></ul>
  4. 4. STANDARD COST <ul><li>May be used in the process type of production or the job order type of production </li></ul><ul><li>May be used for each department (cost center) or in some departments only (and actual costs in others) </li></ul>
  5. 5. USES of STANDARD COSTS <ul><li>Provides a basis for controlling performance </li></ul><ul><li>Basis of comparison between actual and standard costs </li></ul><ul><li>Provides cost information useful for decision-making </li></ul><ul><li>Provides the best available approximation of relevant costs </li></ul>
  6. 6. USES of STANDARD COSTS <ul><li>Provides a more rational measurement of inventory and COGS </li></ul><ul><li>Records the same costs for physically identifiable units (irrespective of other costs) </li></ul><ul><li>Reduces the cost of record-keeping </li></ul><ul><li>Post standard unit material cost instead of individual costs </li></ul>
  7. 7. STANDARD COST and BUDGETED COST <ul><li>Standard Cost : Refers to what the cost of one unit of product should be </li></ul><ul><li>Budgeted Cost : Refers to what the total cost of many units (or over a time period) should be </li></ul>
  8. 8. ESTABLISHMENT OF STANDARDS <ul><li>Motion and time studies </li></ul><ul><li>Review of direct materials and productive equipment to achieve maximum productivity </li></ul><ul><li>Joint efforts of accounting, engineering, personnel administration and other managerial areas </li></ul>
  9. 9. STANDARD COST SYSTEM <ul><li>Cost systems employing detailed estimates of each element of manufacturing cost entering into the finished product </li></ul><ul><li>Helps management determine : </li></ul>How much a product should cost? (Standard) How much is does cost? (Actual) Causes of differences between the two costs? (Variances)
  10. 10. VARIANCES <ul><li>Favorable : </li></ul><ul><li>A favorable variance tells management that if everything else stays constant, the actual profit will likely exceed the planned profit . </li></ul><ul><li>Actual Cost < Standard Cost </li></ul><ul><li>Unfavorable : </li></ul><ul><li>An unfavorable variance tells management that if everything else stays constant, the company's actual profit will be less than planned . </li></ul><ul><li>Actual Cost > Standard Cost </li></ul>
  11. 11. VARIANCES Volume Budget Manufacturing Overhead (Fixed) Efficiency Spending Manufacturing Overhead (Variable) Efficiency (or quantity) Rate (or cost) Direct Labor Usage (or quantity) Price (or cost) Direct Material Variance #2 Variance #1 Input for Product
  12. 12. MATERIALS PRICE VARIANCE Entry #1 (page 589) Actual Price per unit $ 52,000 Less: Standard Price per unit 54,000 Materials Price Variance - (Favorable) $ 2,000
  13. 13. MATERIALS USAGE VARIANCE Entry #2 (page 589) Actual Quantity $ 48,000 Less: Standard Quantity 49,000 Materials Usage Variance - (Favorable) $ 1,000
  14. 14. PRINCIPLE OF EXCEPTIONS <ul><li>Only variances are reported to the individual (or department) responsible </li></ul><ul><li>Ensures that the individual (or department) concentrates of the cause and correction of the variance </li></ul>
  15. 15. VARIABLE COSTING and ABSORPTION COSTING
  16. 16. <ul><li>Direct Materials </li></ul><ul><li>Direct labor </li></ul><ul><li>Variable Factory Overhead </li></ul><ul><li>Fixed Factory Overhead </li></ul><ul><li>Direct materials </li></ul><ul><li>Direct labor </li></ul><ul><li>Variable Factory overhead costs (vary with the rate of production) </li></ul>Costs All manufacturing costs are included in Finished Goods and remain there as an asset until the goods are sold COGS is composed only of variable manufacturing costs Cost of Goods Manufactured ABSORPTION COSTING VARIABLE COSTING
  17. 17. USES of VARIABLE COSTING and ABSORPTION COSTING Provide data on required selling price to cover all costs and provide reasonable income Provide data on the relationship between selling price, fixed costs and income Pricing Products Useful in determining historical costs for financial reporting to external users and for tax reporting Useful for management for various levels of management in their review of controllable and noncontrollable costs Controlling Costs ABSORPTION COSTING VARIABLE COSTING
  18. 18. USES of VARIABLE COSTING and ABSORPTION COSTING Helps with long-term decisions affecting fixed costs Determines the profit contribution by each segment (salesman, territory, product, customer distribution channel) Analyzing Market Segments Helps with long-term decisions affecting fixed costs Helps with short-term decisions when there are opportunities for additional income (but with additional variable costs) Planning Production ABSORPTION COSTING VARIABLE COSTING
  19. 19. QUALITY COSTS
  20. 20. COST OF QUALITY <ul><li>Costs associated with: </li></ul><ul><li>Controlling quality ( Appraisal Costs or Prevention Costs) </li></ul><ul><li>Failing to control quality (Internal Failure Costs or External Failure Costs) </li></ul>
  21. 21. PREVENTION COSTS (Also called Quality Prevention Costs) <ul><li>Costs of activities that prevent defects </li></ul><ul><li>from occurring in the design and </li></ul><ul><li>delivery of products and services </li></ul><ul><li>Examples of prevention activities: </li></ul><ul><li>Quality engineering </li></ul><ul><li>Design engineering </li></ul><ul><li>Assessing vendor quality </li></ul><ul><li>Operator training </li></ul><ul><li>Preventive machine maintenance </li></ul>
  22. 22. QUALITY APPRAISAL COSTS (Also called Detection Costs) <ul><li>Costs of activities that detect, measure, evaluate, and inspect products and processes to ensure that they meet customer needs </li></ul><ul><li>Related to testing and inspection </li></ul><ul><li>activities </li></ul><ul><li>Only reduces the amount of poor quality products that reach the customers </li></ul>
  23. 23. INTERNAL FAILURE COSTS <ul><li>Costs associated with defects discovered </li></ul><ul><li>by a business before the product or </li></ul><ul><li>service is delivered </li></ul><ul><li>Examples: </li></ul><ul><li>Cost of scrap and rework </li></ul><ul><li>Lost equipment time due from producing scrap </li></ul><ul><li>Supervision to move, record and dispose of scrap </li></ul><ul><li>Procurement time to repurchase parts that are defective </li></ul>
  24. 24. EXTENAL FAILURE COSTS <ul><li>Costs incurred after defective units/ </li></ul><ul><li>services have been delivered to customers </li></ul><ul><li>Are external because the defects are </li></ul><ul><li>discovered while products are in use </li></ul><ul><li>Examples: </li></ul><ul><li>Field repairs </li></ul><ul><li>Recalls </li></ul><ul><li>Warranty work </li></ul><ul><li>Correcting invoice errors </li></ul><ul><li>Processing returned merchandise </li></ul>
  25. 25. JOINT COSTS
  26. 26. JOINT PRODUCTS When two or more commodities of significant value are produced from a single principal direct material Examples: Gasoline, kerosene, paraffin and other related commodities emerging from the processing of crude oil JOINT COSTS Costs incurred in the manufacture of joint products
  27. 27. SALES VALUE METHOD A method of allocating joint costs based on the assignment of costs to the various products in accordance with their relative sales values.
  28. 28. SALES VALUE METHOD Allocation of Joint Costs X = $30,000/90,000 x 63,000 $21,000 Y = $60,000/90,000 x 63,000 $42,000 $90,000 Total Sales Value $63,000 $60,000 $1.20/unit 50,000 units Y $30,000 $3/unit 10,000 units X Joint Costs Total Sales Value Sales Value/Unit Units Produced Joint Products
  29. 29. SALES VALUE METHOD Allocation of Joint Costs X = $30,000/90,000 x 63,000 $21,000 Y = $60,000/90,000 x 63,000 $42,000 Unit Cost X = $21,000/ 10,000 units $2.10 Y = $42,0000/ 50,000 units $0.84 $90,000 Total Sales Value $63,000 $60,000 $1.20/unit 50,000 units Y $30,000 $3/unit 10,000 units X Joint Costs Total Sales Value Sales Value/Unit Units Produced Joint Products
  30. 30. SALES VALUE METHOD $1,500 $600 Addl Mktg & Prod Costs (Costs Beyond the Split-Up) $3,000 Joint Costs (up to Split-Off) $5,900 $8,000 Total Sales Value $4,500 $6,000 $20/unit 300 units B $1,400 $2,000 $10/unit 200 units A TSV – Addl Costs Total Sales Value Sales Value/Unit Units Produced Joint Products
  31. 31. SALES VALUE METHOD Allocation of Joint Costs A = $1,400/5,900 x 3,000 $712 B = $4,500/5,900 x 3,000 $2,288 $1,500 $600 Addl Mktg & Prod Costs $3,000 Joint Costs (up to Split-Off) $5,900 $8,000 Total Sales Value $4,500 $6,000 $20/unit 300 units B $1,400 $2,000 $10/unit 200 units A TSV – Addl Costs Total Sales Value Sales Value/Unit Units Produced Joint Products
  32. 32. SALES VALUE METHOD Allocation of Joint Costs A = $1,400/5,900 x 3,000 $712 B = $4,500/5,900 x 3,000 $2,288 Unit Costs for each product A = $712/ 200 units $3.56 $600/ 200 units 3.00 Unit Cost $6.56 B = $2,288/300 units $7.63 $1,500/300 units 5.00 Unit Cost $12.63 $1,500 $600 Addl Mktg & Prod Costs $3,000 Joint Costs (up to Split-Off) $5,900 $8,000 Total Sales Value $4,500 $6,000 $20/unit 300 units B $1,400 $2,000 $10/unit 200 units A TSV – Addl Costs Total Sales Value Sales Value/Unit Units Produced Joint Products
  33. 33. THANK YOU Maria Arlene (Bam) T. Disimulacion

×