Beruflich Dokumente
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Classifications
Chapter Two
Learning Objective 1
Manufacturing Costs
Direct
Direct Direct
Direct Manufacturing
Manufacturing
Materials
Materials Labor
Labor Overhead
Overhead
The Product
Direct Materials
Example:
Example: A
A radio
radio installed
installed in
in an
an automobile
automobile
Direct Labor
Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly workers
workers
Manufacturing Overhead
Examples:
Examples: Indirect
Indirect labor
labor and
and indirect
indirect materials
materials
Non-manufacturing Costs
Selling Administrative
Costs Costs
Learning Objective 2
Distinguish between
product costs and period
costs and give examples
of each.
Sale
Quick Check
Quick Check
Classifications of Costs
Prime Conversion
Cost Cost
Merchandisers . . . Manufacturers . . .
Buy finished goods. Buy raw materials.
Sell finished goods. Produce and sell
finished goods.
MegaLoMart
Balance Sheet
Merchandiser Manufacturer
Current assets Current Assets
Cash ◆ Cash
Receivables ◆ Receivables
Balance Sheet
Merchandiser Manufacturer
Current assets Current Assets
Cash ◆ Cash
Receivables ◆ Receivables
Materials waiting to
Prepaid Expenses be processed.
◆ Prepaid Expenses
Partially complete ◆ Inventories
Merchandise
products – some
Inventory • Raw Materials
material, labor, or • Work in Process
overhead has been • Finished Goods
added.
Completed products
awaiting sale.
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Learning Objective 3
Prepare an income
statement including
calculation of the cost of
goods sold.
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
Withdrawals
Withdrawals
Beginning
Beginning Additions
Additions Ending
Ending
balance
balance
+ to
to inventory
inventory
= balance
balance
+ from
from
inventory
inventory
Quick Check
Quick Check
Learning Objective 4
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Learning Objective 5
Understand the
differences between
variable costs and fixed
costs.
How
How aa cost
cost will
will react
react to
to
changes
changes in in the
the level
level of
of
activity
activity within
within thethe
relevant
relevant range.
range.
Total
Totalvariable
variablecosts
costs
change
changewhen
whenactivity
activity
changes.
changes.
Total
Totalfixed
fixedcosts
costsremain
remain
unchanged
unchangedwhen
whenactivity
activity
changes.
changes.
Variable Cost
Minutes Talked
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Telephone Charge
Per Minute
Minutes Talked
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Fixed Cost
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.
Quick Check
Quick Check
Learning Objective 6
Understand the
differences between direct
and indirect costs.
Learning Objective 7
Opportunity Cost
Sunk Costs
Sunk costs have already been incurred and cannot be changed now
or in the future. They should be ignored when making decisions.
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
• Financial reporting
• Predicting cost behavior
• Assigning costs to cost objects
• Decision making
Appendix 2A
Learning Objective 8
(Appendix 2A)
Properly account for labor
costs associated with idle
time, overtime, and fringe
benefits.
Idle Time
Machine Material
Breakdowns Shortages
Power
Failures
Overtime
Appendix 2B
Learning Objective 9
(Appendix 2B)
Identify the four types of
quality costs and explain
how they interact.
Quality of Conformance
Support activities
Prevention whose purpose is to
Costs reduce the number of
defects
Incurred to identify
defective products
Appraisal Costs before the products are
shipped
Incurred as a result of
Internal Failure
identifying defects
Costs before they are shipped
Incurred as a result of
External Failure defective products
Costs being delivered to
customers
Appraisal Costs
Prevention Costs • Testing & inspecting
• Quality training
incoming materials
• Quality circles
• Final product testing
• Statistical process
• Depreciation of testing
control activities
equipment
Learning Objective 10
(Appendix 2B)
Prepare and interpret a
quality cost report.
Appraisal costs:
Inspection
Reliability testing
600,000
580,000
1.20%
1.16%
560,000
420,000
1.12%
0.84% Quality cost
Supervision of testing and inspection
Depreciation of test equipment
120,000
200,000
0.24%
0.40%
80,000
140,000
0.16%
0.28% reports provide
Total appraisal cost 1,500,000 3.00% 1,200,000 2.40%
an estimate of
Internal failure costs:
Net cost of scrap 900,000 1.80% 750,000 1.50% the financial
Rework labor and overhead 1,430,000 2.86% 810,000 1.62%
Downtime due to defects in quality 170,000 0.34% 100,000 0.20% consequences
Disposal of defective products 500,000 1.00% 340,000 0.68%
Total internal failure cost 3,000,000 6.00% 2,000,000 4.00% of the
External failure costs:
W arranty repairs 400,000 0.80% 900,000 1.80%
company’s
W arranty replacements
Allowances
870,000
130,000
1.74%
0.26%
2,300,000
630,000
4.60%
1.26%
current defect
Cost of field servicing
Total external failure cost
600,000
2,000,000
1.20%
4.00%
1,320,000
5,150,000
2.64%
10.30%
rate.
Total quality cost $ 7,500,000 15.00% $ 9,000,000 18.00%
$10 20
9 18
Quality
7 14
6
External
Failure
External
Failure
can also 12
External
Failure
External
Failure
5 be 10
End of Chapter 2