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CHAPTER 18 PowerPoint Presentation

CHAPTER 18

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CHAPTER 18

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  1. CHAPTER 18 MANAGERIAL ACCOUNTING CONCEPTS/JOB COSTING

  2. Compare Managerial and Financial Accounting Financial accounting provides information for external use. Managerial accounting provides information for internal use. Creditors and investors Managers

  3. Financial Accounting Uses historical data Presents summary data Complies with GAAP (Generally AcceptedAccounting Principles) Managerial Accounting May use estimates of future (e.g., budgeting) More detailed data Flexible format, cost/benefit analysis determines proper level of information Compare Managerial and Financial Accounting

  4. Ethical Issues Competence Confidentiality Institute of Management AccountantsStandards of Ethical Conduct Integrity Objectivity

  5. Manufacturing Cost Concepts Cost is a financial measure of resourcesused or given up to achieve an objective. Product costs are the costs acompany assigns to units produced. (i.e., costs which relate to or attach to the product)

  6. DirectLabor DirectMaterial ManufacturingOverhead Product Cost Components Product Costs

  7. Product Cost Components Direct Materials • Materials that are clearly and easily traced to a particular product • Example: Wood used to manufacture a high-quality dining room table

  8. Product Cost Components Direct Labor • Labor cost of employees working to convert materials into finished goods • Labor cost clearly traceable to, or readily identifiable with, the finished product • Example: Wages paid to carpenter

  9. Product Cost Components Manufacturing Overhead • All manufacturing costs except direct material and direct labor • Manufacturing costs that cannot be traced directly to specific units produced • Example: Indirect labor such as furniture designer

  10. Product Cost Components Manufacturing Overhead - other examples • - Indirect labor: Janitors, Supervisors, Materials storeroom personnel, Cost accountant • - Indirect materials: Oil, Nails, Glue • - Other indirect costs: • Repairs and maintenance on factory buildings and equipment • Payroll taxes and fringe benefits for manufacturing employees • Depreciation on factory buildings and equipment • Insurance and taxes on factory property and inventories • Utilities for factory buildings

  11. Because the costs remainin inventory until theproduct is sold, atwhich time they becomean expense calledcost of goods sold. Why are productcosts often calledinventoriable costs? Product Costs

  12. Period Costs • Nonmanufacturing costs which relate to or attach to the period • Can be classified as • Selling costs • Administrative costs Period costs are expensed in theperiod incurred. Period costs are never inventoriedwith the product.

  13. Period Costs Selling Costs Costs incurred to obtain customer ordersand to deliver finished goods to customers(e.g., advertising and shipping) Administrative Costs Nonmanufacturing costs of staff support andadministrative functions (e.g., accounting, dataprocessing, personnel, research and development)

  14. Question The primary distinction between product and period costs is . . . a. Product costs are expensed in the period incurred. b. Product costs are directly traceable to product units. c. Product costs are inventoriable. d. Period costs are inventoriable.

  15. Question The primary distinction between product and period costs is . . . a. Product costs are expensed in the period incurred. b. Product costs are directly traceable to product units. c. Product costs are inventoriable. d. Period costs are inventoriable. a. b. c. d.

  16. Ways to Classify Costs 1 Product Costs Period Costs 2 Direct Materials Direct Labor Manufacturing Overhead Selling Administrative 3 Manufacturing Costs Non-Manufacturing Costs 4 Either fixed or Variable Costs

  17. Work inProcess RawMaterials FinishedGoods Financial Reporting by Manufacturing Companies ManufacturingInventoryClassifications

  18. Partially completeproducts Material to whichsome labor and/oroverhead havebeen added Materialswaiting to beprocessed Completedproductsfor sale Financial Reporting by Manufacturing Companies Work inProcess RawMaterials FinishedGoods

  19. MERCHANDISER Current Assets Cash Receivables Prepaid Expenses Merchandise Inventory MANUFACTURER Current Assets Cash Receivables Prepaid Expenses Inventories Raw Materials Work in Process Finished Goods Balance Sheet Presentation

  20. Question What type of account is the manufacturing work in process account? a. Income statement expense account. b. Balance sheet inventory account. c. Temporary clearing account for direct material and direct labor. d. Holding account for manufacturing overhead and direct labor.

  21. Question What type of account is the manufacturing work in process account? a. Income statement expense account. b. Balance sheet inventory account. c. Temporary clearing account for direct material and direct labor. d. Holding account for manufacturing overhead and direct labor. a. b. c. d.

  22. Work in Process FinishedGoods Cost of GoodsSold Manufacturing Cost Flows Direct Material Direct Labor ManufacturingOverhead

  23. Cost of Goods Manufactured Cost of all goods completed during a period and transferred from work in process to finished goods

  24. Cost of Goods Manufactured Cost of all goods completed during a period and transferred from work in process to finished goods Direct Materials Used + Direct Labor + Manufacturing Overhead = Cost to Manufacture + Beginning Work in Process – Ending Work in Process = Cost of Goods Manufactured

  25. Cost of Goods Sold Cost of the items sold to customers during a period

  26. Cost of Goods Sold Cost of the items sold to customers during a period Beginning Finished Goods + Cost of Goods Manufactured = Cost of Goods Available for Sale – Ending Finished Goods = Cost of Goods Sold

  27. Income Statement Presentation Sales – Cost of Goods Sold = Gross Margin – Operating Expenses = Operating Income p.688

  28. ProcessCosting JobCosting Types of Cost Systems • Used for production of small, identical, low-cost items • Mass produced in automated continuous production process • Costs cannot be directly traced to each unit of product

  29. ProcessCosting JobCosting Types of Cost Systems • Typical process cost applications: • Petrochemical refinery • Paint manufacturer • Paper mill

  30. ProcessCosting JobCosting Types of Cost Systems • Used for production of large, unique, high-cost items • Built to order rather than mass produced • Many costs can be directly traced to each job

  31. Types of Cost Systems ProcessCosting JobCosting • Typical job order cost applications • Custom furniture manufacturing • Building construction • Also used in service industry • Hospitals • Accounting and law firms

  32. Directmaterial Traced directly to each job THE JOB Traced directly to each job Direct labor Job Order Costing

  33. ManufacturingOverhead (OH) Applied to eachjob based onactivity causingthe OH Directmaterial Traced directly to each job THE JOB Traced directly to each job Direct labor Job Order Costing

  34. Job Order Costing ManufacturingOverhead (OH) Applied to eachjob based onactivity causingthe OH Synonyms for “Applied” Overhead Assigned Distributed Allocated Absorbed

  35. I see some journalentries for job costingon the horizon! Job Order Costing

  36. Job Order Costing Typical Accounting Entries(pp. 690 - 693) • To record purchase of materials • Raw Materials Inventory (Debit) • Accounts Payable (Credit) • To record use of materials • Work in Process Inventory (Debit) • Manufacturing Overhead (Debit) • Materials Inventory (Credit)

  37. Job Order Costing Payroll Accounting Entry (Not discussed in text) To record payment to employees • Payroll Summary (Debit) • Wages Payable (Credit) • Various Taxes Withheld (Credit)

  38. Job Order Costing • Typical Accounting Entries(pp. 690 - 693) • To record labor costs • Work in Process Inventory (Debit) • Manufacturing Overhead (Debit) • Payroll Summary (Credit) • To apply overhead to jobs • Work in Process Inventory (Debit) • Manufacturing Overhead (Credit)

  39. Job Order Costing • Typical Accounting Entries(pp. 690 - 693) • To record completion of jobs • Finished Goods Inventory (Debit) • Work in Process Inventory (Credit)

  40. Job Order Costing Typical Accounting Entries(pp. 690 - 693) • To record sales • Accounts Receivable (Debit) • Sales (Credit) • To record cost of goods sold • Cost of Goods Sold (Debit) • Finished Goods Inventory (Credit)

  41. Job Cost Flows Raw Materials WIP FG Mfg. O/H CGS

  42. Job Cost Flows Raw Materials Work in Process Material Purchases Mfg. Overhead

  43. Job Cost Flows Raw Materials Work in Process DirectMaterial DirectMaterial Material Purchases Mfg. Overhead

  44. Job Cost Flows Raw Materials Work in Process DirectMaterialIndirect Material DirectMaterial Material Purchases Mfg. Overhead ActualOverheadCosts

  45. Job Cost Flows Payroll Summary Work in Process DirectMaterial Incurred Mfg. Overhead ActualOverheadCosts

  46. Job Cost Flows Payroll Summary Work in Process DirectLabor DirectMaterialDirectLabor Incurred Mfg. Overhead ActualOverheadCosts

  47. Job Cost Flows Payroll Summary Work in Process DirectLaborIndirect Labor DirectMaterialDirectLabor Incurred Mfg. Overhead ActualOverheadCosts

  48. Job Cost Flows Payroll Summary Work in Process DirectLaborIndirect Labor DirectMaterialDirectLaborOverhead Incurred Mfg. Overhead ActualOverheadCosts OverheadApplied to Work inProcess

  49. Job Cost Flows Work in Process Finished Goods DirectMaterialDirectLaborOverhead Cost of Goods Sold

  50. Job Cost Flows Work in Process Finished Goods DirectMaterialDirectLaborOverhead Cost ofGoodsMfg. Cost ofGoodsMfg. Cost of Goods Sold