Beruflich Dokumente
Kultur Dokumente
HORNGREN
DATAR
FOSTER
Eleventh Edition
Cost Accounting
measures and reports financial and non financial information relating to the cost of acquiring and utilizing resources in an organization. Accumulation of Cost Allocation of Cost
Cost Management
Reference: Cost Accounting A Managerial Emphasis Chapter 1; Page no. 3
Cost and Cost Terminologies 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.
Reference: Cost Accounting A Managerial Emphasis Chapter 2; Page no. 30
Classification of Cost Manufacturing cost and Non manufacturing cost Product cost and Period cost Direct cost and Indirect cost Variable cost and Fixed cost
Direct Material, Direct Labor, Manufacturing Overhead Office and Administrative Overhead, Selling and Marketing Overhead
Reference: Cost Accounting A Managerial Emphasis Chapter 2
Product Cost
Product costs include all the costs that are involved buying or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor and manufacturing overheads. Product costs are viewed as those which are attached as the goods are bought or manufactured. This is the cost at which products are shown in the balance sheet---known as inventoriable costs.
Reference: Cost Accounting A Managerial Emphasis Chapter 2; Page no. 39
Period Cost
These are all the costs that are not included in the product costs. Such costs are expensed in the P&L account, during the period in which they occur. Period costs are not included as part of the product.
E.g.: telephone bill, sales commissions, depreciation office rent are good examples .
Direct Cost Direct Costs Example: Paper on which Sports Illustrated magazine is printed (Product cost)
Indirect Cost Indirect Costs Example: Lease cost for Time-Warner building housing the senior editors of its magazine (Period cost)
Cost Behavior Pattern Bicycles Ltd. buys a handlebar at $52 for each of its bicycles.
What is the total handlebar cost when 1,000 bicycles are assembled?
This is an example of fixed costs with respect to the number of bicycles assembled.
Cost Driver 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.
Relevant Range Assume that fixed (leasing) costs are $94,500 for a year and that they remain the same for a certain volume range (1,000 to 5,000 bicycles).
Relevant Range
120000 100000 80000 60000 40000 20000 0 0 1000 2000
Fixed Costs
$94,500
3000 Volume
4000
5000
6000
Total Cost and Unit Cost What is the unit cost (leasing and handlebars) when Bicycles assembles 1,000 bicycles?
Total fixed cost $94,500 + Total variable cost $52,000 = $146,500 $146,500 1,000 = $146.50
Cost Behavior
Y = a + bX Y = the total mixed cost a = the total fixed cost b = the variable cost per unit of activity X = the level of activity
Use of Unit Cost Concept Assume that Bicycles management uses a unit cost of $146.50 (leasing and wheels).
Management is budgeting costs for different levels of production. What is their budgeted cost for an estimated production of 600 bicycles? 600 $146.50 = $87,900
Reference: Cost Accounting A Managerial Emphasis Chapter 2; Page no. 32
Types of Inventory For Manufacturer: For Merchandiser: Raw Material Finished Goods Work in Process Finished Goods
Types of Cost
Direct Material Direct Labor Manufacturing Overhead
Reference: Cost Accounting A Managerial Emphasis Chapter 2; Page no. 32
Direct Manufacturing Total Labor Cost Overhead Cost Manufacturing Conversion Cost Prime Cost Cost WIP Inventory
An Introduction to Cost Terms and Purposes A distraught employee, Fang W. Arson, put a torch to a manufacturing plant on a blustery February 26. The resulting blaze destroyed the plant and its contents. Fortunately, certain accounting records were kept in another building. They reveal the following for the period from January 1, 2004 to February 26, 2004:
Direct materials purchased Work in process 1.1.04 Direct materials 1.1.04 Finished goods 1.1.04 $160,000 34,000 16,000 30,000
Example (2 35)
Calculate the cost of (as on 2/26/2004): Finished goods inventory; Work in process inventory & Direct material inventory.