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Work of Management
Planning
Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organizations
organizations objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide
progress
progress toward
toward the
the
selected
selected alternative.
alternative.
2-3
Directing and Motivating
2-4
Controlling
The
The control
control function
function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback inin the
the form
form ofof performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.
2-5
Planning and Control Cycle
Formulating
Formulatinglong-
long- Begin
and
andshort-term
short-termplans
plans
(Planning)
(Planning)
Comparing
Comparingactual
actual Implementing
Implementing
to
toplanned
planned Decision plans
performance Making plans(Directing
(Directing
performance and
(Controlling) andMotivating)
Motivating)
(Controlling)
Measuring
Measuring
performance
performance
(Controlling)
(Controlling)
2-6
Comparison of Financial and Managerial
Accounting
2-7
1:General Cost Classification
1: Direct Material
2: Direct Labor
3: Manufacturing overhead (includes indirect labor and
Material)
Manufacturing Cost = 1+2+3
Non Manufacturing Cost: Selling and Administrative
cost.
Indirect Labor: Production supervisor, Materials handling
staff, Quality control staff.
Indirect Material: Cleaning supplies, Disposable safety
equipment, Disposable tools, Fittings and fasteners,
Glue, Tape, Oil
Direct Materials
Example:
Example: A
A radio
radio installed
installed in
in an
an automobile
automobile
2-9
Direct Labor
Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly workers
workers
2-10
Manufacturing Overhead
Examples:
Examples: Indirect
Indirect materials
materials and
and indirect
indirect labor
labor
2-11
Nonmanufacturing Costs
Administrative
Costs
All executive,
organizational, and
clerical costs.
2-12
2: Product Costs Versus Period Costs
2-13
Balance Sheet
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Merchandise Inventory Inventories
Raw Materials
Work in Process
Finished Goods
2-14
Balance Sheet
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Merchandise Inventory Inventories
Raw Materials
Work in Process
Finished Goods
2-15
The Income Statement
Cost of goods sold for manufacturers differs only
slightly from cost of goods sold for merchandisers.
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory $ 14,200
+ Purchases 234,150
Goods available
for sale $ 248,350
- Ending
merchandise
inventory (12,100)
= Cost of goods
sold $ 236,250
2-16
3: Prime Vs Conversation Cost
Prime cost = Direct material + Direct Labor
Conversion Cost = Direct Labor + Direct
Manufacturing overhead
Basic Equation for Inventory Accounts
Withdrawals
Withdrawals
Beginning
Beginning Additions
Additions Ending
Ending
balance
balance
+ to
to inventory
inventory
= balance
balance
+ from
from
inventory
inventory
2-18
Schedule of Cost of Goods Manufactured
2-19
Manufacturing Cost Flows
Balance Sheet Income
Costs Inventories Statement
Expenses
Material Purchases Raw Materials
How
How aa cost
cost will
will react
react
to
to changes
changes in in the
the
level
level ofof activity
activity within
within
the
the relevant
relevant range.
range.
Total variable costs
Total variable costs
change
change when
when activity
activity
changes.
changes.
Total fixed costs
Total fixed costs
remain
remain unchanged
unchanged
when
when activity
activity changes.
changes.
2-21
Variable Cost
2-22
Variable Cost Per Unit
2-23
Fixed Cost
Your monthly contract fee for your cell phone is fixed for the
number of monthly minutes in your contract. The monthly
contract fee does not change based on the number of calls
you make.
Monthly Cell Phone
Contract Fee
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
2-26
5: Cost classification for assigning cost to
cost object
Direct cost = is the cost that can be easily and
conveniently traced to a specified cost object
Indirect Cost = is the cost that can not be
traced to specified cost object.
End of Chapter 2
2-29