<<  An Introduction to Animal Diversity An Introduction to Cost Terms and Purposes  >>
Chapter 2
Chapter 2
Chapter 2 learning objectives
Chapter 2 learning objectives
Chapter 2 learning objectives, concluded
Chapter 2 learning objectives, concluded
Basic Cost Terminology
Basic Cost Terminology
Cost Object Examples at BMW
Cost Object Examples at BMW
Basic Cost Terminology, concluded
Basic Cost Terminology, concluded
Direct and Indirect Costs
Direct and Indirect Costs
Cost assignment to a cost object (bmw example)
Cost assignment to a cost object (bmw example)
Cost Examples
Cost Examples
Factors Affecting Direct/Indirect Cost Classification
Factors Affecting Direct/Indirect Cost Classification
Cost Behavior
Cost Behavior
Cost Behavior, contd
Cost Behavior, contd
Cost Behavior Summarized
Cost Behavior Summarized
Graphs of variable and fixed costs
Graphs of variable and fixed costs
Other Cost Concepts
Other Cost Concepts
Multiple Classifications of Costs
Multiple Classifications of Costs
A Cost Caveat
A Cost Caveat
Examples of the Multiple Classifications of Costs
Examples of the Multiple Classifications of Costs
Different Types of Firms
Different Types of Firms
Types of inventory
Types of inventory
Commonly used classifications of manufacturing costs
Commonly used classifications of manufacturing costs
Inventoriable costs vs
Inventoriable costs vs
Cost Flows
Cost Flows
Cost flows illustrated
Cost flows illustrated
Multiple-step income statement, part one
Multiple-step income statement, part one
Multiple-step income statement, part two
Multiple-step income statement, part two
Other Cost Considerations
Other Cost Considerations
Measuring costs requires judgment
Measuring costs requires judgment
Different product Costs for Different purposes
Different product Costs for Different purposes
Different product Costs for Different purposes
Different product Costs for Different purposes
A framework for cost accounting and cost management
A framework for cost accounting and cost management
TERMS to learn
TERMS to learn
TERMS to learn, contd
TERMS to learn, contd
TERMS to learn, contd
TERMS to learn, contd
35
35

: An Introduction to Cost Terms and Purposes. : Michael Flores. : An Introduction to Cost Terms and Purposes.ppt. zip-: 2436 .

An Introduction to Cost Terms and Purposes

An Introduction to Cost Terms and Purposes.ppt
1 Chapter 2

Chapter 2

An Introduction to Cost Terms and Purposes

Copyright 2015 Pearson Education, Inc. All Rights Reserved

2 Chapter 2 learning objectives

Chapter 2 learning objectives

Define and illustrate a cost object Distinguish between direct costs and indirect costs Explain variable costs and fixed costs Interpret unit costs cautiously Distinguish inventoriable costs period costs Illustrate the flow of inventoriable and period costs

2

2-

3 Chapter 2 learning objectives, concluded

Chapter 2 learning objectives, concluded

Explain why product costs are computed in different ways for different purposes Describe a framework for cost accounting and cost management

3

2-

4 Basic Cost Terminology

Basic Cost Terminology

Costa sacrificed or forgone resource to achieve a specific objective. Actual costa cost that has occurred. Budgeted costa predicted cost. Cost objectanything for which a cost measurement is desired.

4

2-

5 Cost Object Examples at BMW

Cost Object Examples at BMW

Cost Object

Illustration

Product

A BMW X6 sports activity vehicle

Service

Telephone hotline providing information and assistance to BMW dealers

Project

R&D project on DVD system enhancement in BMW cars

Customer

Herb Chambers Motors, a dealer that purchases a broad range of BMW vehicles

Activity

Setting up machines for production or maintaining production equipment

Department

Environmental, Health and Safety department

5

2-

6 Basic Cost Terminology, concluded

Basic Cost Terminology, concluded

Cost accumulationthe collection of cost data in an organized way by means of an accounting system. Cost assignmenta general term that encompasses the gathering of accumulated costs to a cost object in two ways: Tracing accumulated costs with a direct relationship to the cost object and Allocating accumulated costs with an indirect relationship to a cost object.

6

2-

7 Direct and Indirect Costs

Direct and Indirect Costs

Direct costs can be conveniently and economically traced (tracked) to a cost object. Indirect costs cannot be conveniently or economically traced (tracked) to a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner.

7

2-

8 Cost assignment to a cost object (bmw example)

Cost assignment to a cost object (bmw example)

8

2-

9 Cost Examples

Cost Examples

Direct Costs Parts (steel or tires for a car, as an exampe) Assembly line wages Indirect Costs Electricity Rent Property taxes Plant administration expenses

9

2-

10 Factors Affecting Direct/Indirect Cost Classification

Factors Affecting Direct/Indirect Cost Classification

The materiality of the cost in question. The available information-gathering technology. Design of operations. NOTE: a specific cost may be both a direct cost of one cost object and an indirect cost of another cost object.

10

2-

11 Cost Behavior

Cost Behavior

Variable costschange in total in proportion to changes in the related level of activity or volume of output produced. Fixed costsremain unchanged in total, for a given time period, despite changes in the related level of activity or volume of output produced. Costs are fixed or variable only with respect to a specific activity or a given time period.

11

2-

12 Cost Behavior, contd

Cost Behavior, contd

Variable costs are constant on a per-unit basis. If a product takes 5 pounds of materials each, it stays the same per unit regardless if one, ten, or a thousand units are produced. Fixed costs per unit change inversely with the level of production. As more units are produced, the same fixed cost is spread over more and more units, reducing the cost per unit.

12

2-

13 Cost Behavior Summarized

Cost Behavior Summarized

Total Dollars

Cost per Unit

Total Dollars

Cost Per Unit

Variable Costs

Change in proportion with output More output = More cost

Unchanged in relation to output

Change in proportion with output More output = More cost

Variable Costs

Fixed Costs

Unchanged in relation to output

Change inversely with output More output = lower cost per unit

Change inversely with output More output = lower cost per unit

Unchanged in relation to output

Fixed Costs

13

2-

14 Graphs of variable and fixed costs

Graphs of variable and fixed costs

14

2-

15 Other Cost Concepts

Other Cost Concepts

Cost drivera variable, such as the level of activity or volume, that causally affects costs over a given time span. Relevant rangethe band or range of normal activity level (or volume) in which there is a specific relationship between the level of activity (or volume) and the cost in question. For example, fixed costs are considered fixed only within the relevant range.

15

2-

16 Multiple Classifications of Costs

Multiple Classifications of Costs

Costs may be classified as: Direct/Indirect, and Variable/Fixed These multiple classifications give rise to important cost combinations: Direct and variable Direct and fixed Indirect and variable Indirect and fixed

16

2-

17 A Cost Caveat

A Cost Caveat

Unit costs should be used cautiously. Because unit costs change with a different level of output or volume, it may be more prudent to base decisions on a total cost basis. Unit costs that include fixed costs should always reference a given level of output or activity. Unit costs are also called average costs. Managers should think in terms of total costs rather than unit costs for many decisions.

17

2-

18 Examples of the Multiple Classifications of Costs

Examples of the Multiple Classifications of Costs

18

2-

19 Different Types of Firms

Different Types of Firms

Manufacturing-sector companies purchase materials and components and convert them into finished products. Merchandising-sector companies purchase and then sell tangible products without changing their basic form. Service-sector companies provide services (intangible products) like legal advice or audits.

19

2-

20 Types of inventory

Types of inventory

Direct materialsresources in-stock and available for use Work-in-process (or progress)products started but not yet completed, often abbreviated as WIP Finished goodsproducts completed and ready for sale Note: Merchandising-sector companies hold only one type of inventory: merchandise inventory

20

2-

21 Commonly used classifications of manufacturing costs

Commonly used classifications of manufacturing costs

Also known as inventoriable costs Direct materialsacquisition costs of all materials that will become part of the cost object. Direct laborcompensation of all manufacturing labor that can be traced to the cost object. Indirect manufacturingfactory costs that are not traceable to the product in an economically feasible way. Examples include lubricants, indirect manufacturing labor, utilities, and supplies.

21

2-

22 Inventoriable costs vs

Inventoriable costs vs

period costs

Inventoriable costs are all costs of a product that are considered assets in a companys balance sheet when the costs are incured and that are expensed as cost of goods sold only when the product is sold. For manufacturing companies, all manufacturing costs are inventoriable costs. Period costs are all costs in the income statement other than cost of goods sold. They are treated as expenses of the accounting period in which they are incurred.

22

2-

23 Cost Flows

Cost Flows

The Cost of Goods Manufactured and the Cost of Goods Sold section of the Income Statement are accounting representations of the actual flow of costs through a production system. Note how inventoriable costs to through the balance sheet accounts of work-in-process and finished goods inventory before entering the cost of goods sold in the income statement.

23

2-

24 Cost flows illustrated

Cost flows illustrated

24

2-

25 Multiple-step income statement, part one

Multiple-step income statement, part one

25

2-

26 Multiple-step income statement, part two

Multiple-step income statement, part two

26

2-

27 Other Cost Considerations

Other Cost Considerations

Prime cost is a term referring to all direct manufacturing costs (materials and labor). Conversion cost is a term referring to direct labor and indirect manufacturing costs. Overtime labor costs are considered part of indirect overhead costs.

27

2-

28 Measuring costs requires judgment

Measuring costs requires judgment

Because there are alternative ways for management to define and classify costs, judgment is required. Managers, accountants, suppliers and others should agree on the classifications and meanings of the cost terms introduced in this chapter and throughout the book.

28

2-

29 Different product Costs for Different purposes

Different product Costs for Different purposes

Pricing and product-mix decisionsdecisions about pricing and maximizing profits Contracting with government agenciesvery specific definitions of allowable costs for cost plus profit contracts Preparing external-use financial statementsGAAP-driven product costs only

29

2-

30 Different product Costs for Different purposes

Different product Costs for Different purposes

30

2-

31 A framework for cost accounting and cost management

A framework for cost accounting and cost management

The following three features of cost accounting and cost management can be used for a wide range of applications (for helping managers make decisions): Calculating the cost of products, services, and other cost objects Obtaining information for planning and control, and performance evaluation Analyzing the relevant information for making decisions

31

2-

32 TERMS to learn

TERMS to learn

TERMS to LEARN

Page Number Reference

Actual cost

Page 29

Average cost

Page 36

Budgeted cost

Page 29

Conversion costs

Page 46

Cost

Page 29

Cost accumulation

Page 29

Cost allocation

Page 30

Cost assignment

Page 30

Cost driver

Page 34

Cost object

Page 29

Cost of goods manufactured

Page 43

Cost tracing

Page 30

32

2-

33 TERMS to learn, contd

TERMS to learn, contd

TERMS to LEARN

Page Number Reference

Direct costs of a cost object

Page 30

Direct manufacturing labor costs

Page 39

Direct material costs

Page 39

Direct materials inventory

Page 38

Factory overhead costs

Page 39

Finished goods inventory

Page 38

Fixed costs

Page 32

Idle time

Page 47

Indirect costs of a cost object

Page 30

Indirect manufacturing costs

Page 39

Inventoriable costs

Page 39

Manufacturing overhead costs

Page 39

33

2-

34 TERMS to learn, contd

TERMS to learn, contd

TERMS to LEARN

Page Number Reference

Manufacturing-sector companies

Page 38

Merchandising-sector companies

Page 38

Operating income

Page 44

Overtime premium

Page 47

Period costs

Page 39

Prime costs

Page 45

Product cost

Page 48

Relevant range

Page 35

Revenues

Page 39

Service-sector companies

Page 38

Unit cost

Page 36

Variable cost

Page 21

Work-in-process inventory

Page 38

Work in progress

Page 38

34

2-

35 35

35

An Introduction to Cost Terms and Purposes
http://900igr.net/prezentacija/bez_uroka/an-introduction-to-cost-terms-and-purposes-96921.html
c

1
900igr.net > > > An Introduction to Cost Terms and Purposes