Khalid Aziz ACCOUNTING OF ICMAP, CA..B,C & D, PIPFA, BBA, MBA, M.COM, B.COM 0322-3385752

1. Khalid AzizACCOUNTING OF ICMAP, CA..B,C & D, PIPFA, BBA, MBA, M.COM, B.COM0322-3385752 Cost Management Systems and Activity-Based Costing Khalid Aziz--0322-3385752

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

3. JOIN KHALID AZIZ • FRESH CLASSES OF B.COM 1 & 2 • ALL IMPORTANT SUBJECTS • COMPLETION OF SYLLABUS • JOIN NOW Khalid Aziz--0322-3385752

4. JOIN KHALID AZIZ • ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 (NEW CLASSES)CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752http://finance.groups.yahoo.com/group/cost-accountants Khalid Aziz--0322-3385752

5. Describe the purposes of cost management systems. Learning Objective 1 Khalid Aziz--0322-3385752

6. Cost Management System A cost-management system(CMS) is a collection of tools and techniques that identifies how management’s decisions affect costs. Khalid Aziz--0322-3385752

7. What is Cost Accounting? Costaccounting is that part of the accounting system that measures costs for the purposes of management decision making and financial reporting. Khalid Aziz--0322-3385752

8. Explain the relationships among cost, cost objective, cost accumulation, and cost allocation. Learning Objective 2 Khalid Aziz--0322-3385752

9. Cost Accounting System Collecting costs by some “natural” classification such as materials or labor Cost Accumulation Cost Allocation Tracing costs to one or more cost objectives Khalid Aziz--0322-3385752

10. Cost Accounting System RAW MATERIAL COSTS (METALS Cost Accumulation Cost Allocation to Cost Objects: 1. Departments 2. Activities 3. Products MACHINING DEPARTMENT ACTIVITYACTIVITY FINISHING DEPARTMENT ACTIVITYACTIVITY CABINETS CABINETS DESKS DESKS TABLES TABLES Khalid Aziz--0322-3385752

11. 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. Khalid Aziz--0322-3385752

12. Cost Objective What is a cost object or cost objective? It is anything for which a separate measurement of costs is desired. Khalid Aziz--0322-3385752

13. Distinguish among direct, indirect, and unallocated costs. Learning Objective 3 Khalid Aziz--0322-3385752

14. Direct Costs What are direct costs? Direct costs can be identified specifically and exclusively with a given cost objective in an economically feasible way. Khalid Aziz--0322-3385752

15. Indirect Costs What are indirect costs? Indirect costs cannot be identified specifically and exclusively with a given cost objective in an economically feasible way. Khalid Aziz--0322-3385752

16. 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. Khalid Aziz--0322-3385752

17. 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. Khalid Aziz--0322-3385752

18. JOIN KHALID AZIZ • ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 (NEW CLASSES)CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752http://finance.groups.yahoo.com/group/cost-accountants Khalid Aziz--0322-3385752

19. Categories of Manufacturing Costs • All costs which are eventually allocated to products are classified as either… • direct materials, • direct labor, or • indirect manufacturing. Khalid Aziz--0322-3385752

20. 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. Khalid Aziz--0322-3385752

21. 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. Khalid Aziz--0322-3385752

22. Indirect Manufacturing Costs... • or factoryoverhead, include all costs associated with the manufacturing process that cannot be traced to the manufactured goods in an economically feasible way. Khalid Aziz--0322-3385752

23. 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. Khalid Aziz--0322-3385752

24. Period Costs... • are costs that are deducted as expenses during the current period without going through an inventory stage. Khalid Aziz--0322-3385752

25. 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. Khalid Aziz--0322-3385752

26. Period Costs – Merchandising and Manufacturing • In both merchandising and manufacturing accounting, selling and general administrative costs are period costs. Khalid Aziz--0322-3385752

27. Explain how the financial statements of merchandisers and manufacturers differ because of the types of goods they sell. Learning Objective 4 Khalid Aziz--0322-3385752

28. Financial Statement Presentation– Merchandising Companies Income Statement Balance Sheet Sales – Expiration Merchandise Inventory Cost of Goods Sold (an expense) Equals Gross Margin – Selling and Administrative Expenses Period Costs Equals Operating Income Khalid Aziz--0322-3385752

29. Financial Statement Presentation– Manufacturing Companies Income Statement Balance Sheet Sales – Direct Material Inventory Expiration Cost of Goods Sold (an expense) Equals Gross Margin – Work-in- Process Inventory Finished Goods Inventory Selling and Administrative Expenses Period Costs Equals Operating Income Khalid Aziz--0322-3385752

30. 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 ofgoods sold is different. Khalid Aziz--0322-3385752

31. Cost of Goods Sold for a Manufacturer • The manufacturer’s cost of goods produced and then sold is usually composed of the three major categories of cost: • Direct materials • Direct labor • Indirect manufacturing Khalid Aziz--0322-3385752

32. Cost of Goods Soldfor a Retailer or Wholesaler • The merchandiser’s cost of goods sold is usually composed of the purchase cost of items, including freight-in, that are acquired and then resold. Khalid Aziz--0322-3385752

33. Understand the main differences between traditional and activity-based costing systems and why ABC systems provide value to managers. Learning Objective 5 Khalid Aziz--0322-3385752

34. Traditional Cost System Direct Material Resource Direct Labor Resource All Indirect Resources All Unallocated Value Chain Costs Direct Trace Direct Trace Cost Driver Products Unallocated Khalid Aziz--0322-3385752

35. Two-Stage Activity-BasedCost System Direct Material Resource Direct Labor Resource Other Direct Resources Indirect Resource A Indirect Resource Z All Unallocated Value Chain Costs % % % % Direct Trace Direct Trace Activity 1 Activity 10 Cost Driver Cost Driver Products Unallocated Khalid Aziz--0322-3385752

36. 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. Khalid Aziz--0322-3385752

37. Activity-Based Costing 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 Khalid Aziz--0322-3385752

38. Learning Objective 6 Identify the steps involved in the design and implementation of an activity-based costing system. Khalid Aziz--0322-3385752

39. Designing and Implementing an Activity-Based Costing System Step 1 Step 2 Determine cost of activities, resources, and related cost drivers. Develop a process-based map representing the flow of activities, resources, and their interrelationships. Khalid Aziz--0322-3385752

40. Designing and Implementing an Activity-Based Costing System Step 3 Collect relevant data concerning costs and the physical flow of the cost-driver units among resources and activities. Khalid Aziz--0322-3385752

41. Designing and Implementing an Activity-Based Costing System Step 4 Calculate and interpret the new activity-based information. Using an activity-based costing system to improve the operations of an organization is activity-basedmanagement(ABM). Khalid Aziz--0322-3385752

42. 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. Khalid Aziz--0322-3385752

43. Activity-Based Management • A value-added costis the cost of an activity that cannot be eliminated without affecting a product’s value to the customer. • In contrast, non-value-added costsare costs that can be eliminated without affecting a product’s value to the customer. Khalid Aziz--0322-3385752

44. Use activity-based cost information to improve the operations of an organization. Learning Objective 7 Khalid Aziz--0322-3385752

45. Using ABC Information Activity-based management… provides costs of value-added and non-value-added activities. improves managers’ understanding of operations. Khalid Aziz--0322-3385752

46. Understand cost accounting’s role in a company’s improvement efforts across the value chain. Learning Objective 8 Khalid Aziz--0322-3385752

47. Cost Accounting andthe Value Chain A good cost accounting system is critical to all value-chain functions from research and development through customer service. Khalid Aziz--0322-3385752

48. JOIN KHALID AZIZ • ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 (NEW CLASSES)CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752http://finance.groups.yahoo.com/group/cost-accountants Khalid Aziz--0322-3385752