Ca 01

657 views

Published on

cost accounting lect first

Published in: Education
0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
657
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
33
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Ca 01

  1. 1. The Nature, Concept & Classification of Cost Accounting. 1 Chapter One
  2. 2. Lecture Outline <ul><li>Introduction to cost Accounting </li></ul><ul><li>Difference between Cost & Financial Accounting </li></ul><ul><li>Cost terminology </li></ul><ul><li>Cost Classification </li></ul><ul><ul><li>Volume </li></ul></ul><ul><ul><li>Ability to Trace </li></ul></ul><ul><ul><li>Departments where Incurred </li></ul></ul><ul><ul><li>Others </li></ul></ul><ul><li>Special Thanks </li></ul>
  3. 3. A system in which cost of product is accumulated For Planning, decision making & Controlling.
  4. 4. 1 - It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data.
  5. 5. 1 - Its focus is on reporting to external parties. It provides financial statements based on generally accepted accounting principles. It measures and records business transactions.
  6. 6. Managing Resources, Activities, and People <ul><li>An organization . . . </li></ul>Acquires Resources Hires People Organized set of activities Decision Making Planning Directing Controlling
  7. 7. Process of Management Managers need cost information to perform each of these functions. Decision Making Directing Control Planning
  8. 8. 1 - Feedback Management Decision Management Accounting System Planning Control Performance Evaluation Budgets Accounting System Performance Reports
  9. 9. 1 - Setting goals Predicting results Deciding how to attain goals What is planning?
  10. 10. 1 - Deciding and taking actions Deciding on performance evaluation and feedback What is control?
  11. 11. 1 - They are quantitative expressions of a proposed plan of action . They aid in the coordination and implementation of the plan. What are budgets?
  12. 12. 1 - These are reports that compare actual results with budgeted amounts. What are performance reports?
  13. 13. 1 - Budget Actual Variance Revenues $59,000 $60,000 $1,000 F Cost of goods sold 42,000 43,400 1,400 U Wages 6,700 7,000 300 U General 1,300 900 400 F Fixed costs 5,000 5,000 0 Operating income $ 4,000 $ 3,700 $ 300 U Boone Shop, July 2003
  14. 14. 1 - Budget % Actual % Revenues $59,000 100 $60,000 100 Cost of goods sold 42,000 71 43,400 72 Gross margin $17,000 29 $16,600 28 Actual cost of goods sold were 72% of revenues instead of the budgeted 71%.
  15. 15. 1 - This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future.
  16. 18. A Cost is the Sacarifying value of Any thing.
  17. 19. 2 - Cost is a resource sacrificed or forgone to achieve a specific objective. An actual cost is the cost incurred (a historical cost) as distinguished from budgeted costs. A cost object is anything for which a separate measurement of costs is desired.
  18. 20. Cost Classifications on Financial Statements – Balance Sheet <ul><li>Merchandiser </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Merchandise Inventory </li></ul></ul><ul><li>Manufacturer </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Inventories </li></ul></ul><ul><ul><ul><li>Raw Materials </li></ul></ul></ul><ul><ul><ul><li>Work in Process </li></ul></ul></ul><ul><ul><ul><li>Finished Goods </li></ul></ul></ul>
  19. 21. Cost Classifications on Financial Statements – Balance Sheet <ul><li>Merchandiser </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Merchandise Inventory </li></ul></ul><ul><li>Manufacturer </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Inventories </li></ul></ul><ul><ul><ul><li>Raw Materials </li></ul></ul></ul><ul><ul><ul><li>Work in Process </li></ul></ul></ul><ul><ul><ul><li>Finished Goods </li></ul></ul></ul>Those materials waiting to be processed.
  20. 22. Cost Classifications on Financial Statements – Balance Sheet <ul><li>Manufacturer </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Inventories </li></ul></ul><ul><ul><ul><li>Raw Materials </li></ul></ul></ul><ul><ul><ul><li>Work in Process </li></ul></ul></ul><ul><ul><ul><li>Finished Goods </li></ul></ul></ul>Partially complete products – material to which some labor and/or overhead has been added. <ul><li>Merchandiser </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Merchandise Inventory </li></ul></ul>
  21. 23. Cost Classifications on Financial Statements – Balance Sheet <ul><li>Merchandiser </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Merchandise Inventory </li></ul></ul><ul><li>Manufacturer </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Receivables </li></ul></ul><ul><ul><li>Prepaid Expenses </li></ul></ul><ul><ul><li>Inventories </li></ul></ul><ul><ul><ul><li>Raw Materials </li></ul></ul></ul><ul><ul><ul><li>Work in Process </li></ul></ul></ul><ul><ul><ul><li>Finished Goods </li></ul></ul></ul>Completed products awaiting sale.
  22. 24. Cost Classifications Relationship with Volume. <ul><li>Cost behavior means how a cost will react to changes in the level of business activity. </li></ul><ul><ul><li>Total variable costs change when activity changes. </li></ul></ul><ul><ul><li>Total fixed costs remain unchanged when activity changes. </li></ul></ul>
  23. 25. 2 - Bicycles by the Sea buys a handlebar at $52 for each of its bicycles. What is the total handlebar cost when 1,000 bicycles are assembled?
  24. 26. 2 - 1,000 units × $52 = $52,000 What is the total handlebar cost when 3,500 bicycles are assembled? 3,500 units × $52 = $182,000
  25. 27. 2 - Bicycles by the Sea incurred $94,500 in a given year for the leasing of its plant. This is an example of fixed costs with respect to the number of bicycles assembled.
  26. 28. 2 - What is the leasing (fixed) cost per bicycle when Bicycles assembles 1,000 bicycles? $94,500 ÷ 1,000 = $94.50 What is the leasing (fixed) cost per bicycle when Bicycles assembles 3,500 bicycles? $94,500 ÷ 3,500 = $27
  27. 29. Cost Classifications <ul><li>Cost behavior means how a cost will react to changes in the level of business activity. </li></ul><ul><ul><li>Total variable costs change when activity changes. </li></ul></ul><ul><ul><li>Total fixed costs remain unchanged when activity changes. </li></ul></ul>Activities that cause costs to be incurred are called cost drivers .
  28. 30. 2 - The cost driver of variable costs is the level of activity or volume whose change causes the (variable) costs to change proportionately. The number of bicycles assembled is a cost driver of the cost of handlebars.
  29. 32. Total Variable Cost Example <ul><li>Your total long distance telephone bill is based on how many minutes you talk. </li></ul>Minutes Talked Total Long Distance Telephone Bill
  30. 33. Variable Cost Per Unit Example <ul><li>The cost per long distance minute talked is constant. For example, 5 cents per minute. </li></ul>Minutes Talked Per Minute Telephone Charge
  31. 34. Total Fixed Cost Example <ul><li>Your monthly basic telephone bill probably does not change when you make more local calls. </li></ul>Number of Local Calls Monthly Basic Telephone Bill
  32. 35. Fixed Cost Per Unit Example <ul><li>The average cost per local call decreases as more local calls are made. </li></ul>Number of Local Calls Monthly Basic Telephone Bill per Local Call
  33. 37. Ability to Trace Direct and Indirect Costs <ul><li>Direct costs </li></ul><ul><li>Costs that can be easily and conveniently traced to a product or department. </li></ul><ul><li>Example: cost of paint in the paint department of an automobile assembly plant. </li></ul><ul><li>Indirect costs </li></ul><ul><li>Costs that must be allocated in order to be assigned to a product or department. </li></ul><ul><li>Example: cost of national advertising for an airline is indirect to a particular flight. </li></ul>
  34. 38. Direct and Indirect Costs <ul><li>A cost can be direct to the department, but indirect to units of product produced in the department. </li></ul><ul><ul><li>Example: department manager’s salary. </li></ul></ul><ul><li>Tracing costs directly to departments or products facilitates responsibility accounting. </li></ul>
  35. 39. Relationships of Types of Costs 2 - Direct Indirect Variable Fixed
  36. 40. Department where Incurred . <ul><li>Production Cost. </li></ul><ul><ul><li>Example: Total Cost of product. </li></ul></ul><ul><li>Service Cost </li></ul><ul><ul><li>Example: salaries of Admin Departmrnts. </li></ul></ul>
  37. 41. Controllable and Uncontrollable Costs <ul><li>A cost that can be significantly influenced by a manager is a controllable cost. </li></ul>
  38. 42. Opportunity Cost <ul><li>The potential benefit that is given up when one alternative is selected over another. </li></ul><ul><ul><li>Example: If you were not attending college, you could be earning $20,000 per year. Your opportunity cost of attending college for one year is $20,000. </li></ul></ul>
  39. 43. Sunk Costs <ul><li>All costs incurred in the past that cannot be changed by any decision made now or in the future. </li></ul><ul><li>Sunk costs should not be considered in decisions. </li></ul><ul><ul><li>Example: You bought an automobile that cost $12,000 two years ago. The $12,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $12,000 cost. </li></ul></ul>
  40. 44. Differential Costs <ul><li>Costs that differ between alternatives. </li></ul>Example: You can earn $1,500 per month in your hometown or $2,000 per month in a nearby city. Your commuting costs are $50 per month in your hometown and $300 per month to the city. What is your differential cost?
  41. 45. Differential Costs <ul><li>Costs that differ between alternatives. </li></ul>Example: You can earn $1,500 per month in your hometown or $2,000 per month in a nearby city. Your commuting costs are $50 per month in your hometown and $300 per month to the city. What is your differential cost? $300 - $50 = $250
  42. 46. The extra cost incurred to produce one additional unit. The total cost to produce a quantity divided by the quantity produced . Marginal and average costs are largely a function of cost behavior -- variable and fixed costs.
  43. 47. Costs Benefits More information does not mean more benefits if information overload results.

×