10/1/2016

IPE 481: Industrial

Management

Prianka Binte Zaman

Assistant Professor
Department of IPE, BUET

Syllabus
1. Cost and Management Accounting:
 Elements of cost of products
 Cost centers and allocation of overhead costs
 Marginal costing
 Standard costing
 Cost planning and control
 Budget and budgetary control
 Development and planning process
 Annual development plan
 National budget
2. Financial Management/ Accounting:
 Objectives
 Strategy
 Financing
 Performance analysis of enterprises
 Investment appraisal
 Criteria of investment

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L1-Elements of cost of products

Manufacturing Costs

Direct Direct Manufacturing

Materials Labor Overhead

The Product

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Direct Materials

Those materials that become an integral part of the

product and that can be conveniently traced directly
to it. (Materials that are insignificant are called
indirect material.)

Example: A radio installed in an automobile

Direct Labor

Those labor costs that can be easily traced to

individual units of product. (Labor that cannot be
easily traced is called indirect labor.)

Example: Wages paid to automobile assembly workers

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Manufacturing Overhead

Manufacturing costs that cannot be traced directly to

specific units produced.

Examples: Depreciation, Insurance, property taxes,

Indirect labor and indirect materials

Indirect labor: Wages paid to indirect materials: Materials used

employees who are not directly
involved in production work.
Examples: maintenance workers,
janitors, supervisors and security
guards.
to support the production process.
Examples: lubricants, cleaning
supplies, nuts and bolts used in
the automobile assembly plant.

Nonmanufacturing Costs
(Charged directly to expense on the income
statement)

Marketing and Administrative

Selling Cost Cost

Costs necessary to get the order All executive, organizational, and

and deliver the product. clerical costs.

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Product Costs Versus Period Costs

Product costs include Period costs are not

direct materials, included in product
direct labor, and costs. They are
manufacturing expensed on the
overhead. income statement.
Include all marketing
or selling costs and
administrative costs.

Summary of cost terms

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Cost Classifications for

Predicting Cost Behavior

How a cost will react

to changes in the level
of business activity.
 Total variable costs
change when activity
changes.
 Total fixed costs
remain unchanged when
activity changes.

Variable Cost

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Fixed Cost

Differential Costs and Revenues

Costs and revenues that differ among alternatives.

Example: You have a job paying $1,500 per month in

your hometown. You have a job offer in a neighboring
city that pays $2,000 per month. The commuting cost to
the city is $300 per month.

Differential revenue is:

$2,000 – $1,500 = $500

Differential cost is:

$300

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Opportunity Costs

The potential benefit that

is given up when one
alternative is selected
over another.
Example: If you were
not attending college,
you could be earning
$15,000 per year.
Your opportunity cost
of attending college for one
year is $15,000.

Sunk Costs

Sunk costs have already been incurred and cannot be

changed now or in the future. They should be
ignored when making decisions.

Example: You bought an automobile that cost $10,000

two years ago. The $10,000 cost is sunk because
whether you drive it, park it, trade it, or sell it, you
cannot change the $10,000 cost.

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Schedule of Cost of Goods Manufactured

The Income Statement

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Example Problem : Schedule of Cost of Goods

Manufactured and Income Statement

Solution: Schedule of Cost of Goods Manufactured

and Income Statement

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Solution : Schedule of Cost of Goods Manufactured

and Income Statement

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