Chapter 2
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Chapter 2. Basic Cost Management Concepts and Accounting for Mass Customization Operations. Define & Explain “Cost”. Sacrifice made or resources given up to produce a product or service Meaning depends on the context Purpose dictates Classification & Recording

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Chapter 2

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Chapter 2

Chapter 2

Basic Cost Management

Concepts and Accounting for Mass Customization Operations


Define explain cost

Define & Explain “Cost”

  • Sacrifice made or resources given up to produce a product or service

  • Meaning depends on the context

  • Purpose dictates Classification & Recording

  • Different concepts & classifications are used for different purposes


Definitions match

Definitions Match

Expense

Recognizing product costs as an expense

Product Cost

All costs that are not product costs

Cost of Goods Sold

Cost incurred when an asset is used up or sold to generate revenue

Period Cost

Cost assigned to goods made or bought to resell, Inventoriable costs


List explain the four management processes

List & Explain the Four Management Processes

  • Decision Making

  • Planning

  • Directing Operational Activities

  • Controlling


Describe interaction of product costs to cost of goods sold for a retailer

Year 1

Year 2

Time

Describe Interaction of Product Costs to Cost of Goods Sold for a Retailer

Goods on hand at end of the year are an asset, value = product cost

Buy goods to resell, Product Cost=purchase price + transportation

Sell goods an expense COGS is equal to the product expense of goods sold


Do the same thing for a manufacturer

Year 1

Year 2

Time

Do the Same Thing for a Manufacturer

Goods are made, product cost = direct material + direct labor + manu. overhead

Sell goods an expense COGS is equal to the product expense of goods sold

Goods on hand at end of the year are an asset, value = product cost


Do same thing for period costs

Year 1

Year 2

Time

Do Same Thing for Period Costs

Period costs incurred in Year 1 are expensed in Year 1

Period costs incurred in Year 2 are recognized as expenses in Year 2

Period costs treated the same in all types of businesses


Review general format of an income statement

Review General Format of an Income Statement

Sales $1,000,000

Cost of goods sold 600,000

Gross profit $400,000

Less: S & A expenses 200,000

Operating expenses $200,000

Less: interest expense 50,000

Income before income tax $150,000

Income tax expense 60,000

Net income $90,000


Definitions match1

Definitions Match

Raw Materials

Materials, Direct Labor & Overhead of units started but uncompleted

All materials before they’re entered into production

Work-in-Process

Goods that are completed & ready for sale to customers

Finished Goods


Fill in the arrows

Fill in the Arrows

A few major high volume products

Standardized commodities produced in high volumes

Unique low volume products

Multiple low volume products

Customized assembly of standardized components in high volume

Assembly Line

Continuous

Job Shop

Batch

Mass Customization


Define discuss mass customization manufacturing

Define & Discuss Mass-Customization Manufacturing

  • Many standardized components are chosen to produce customized products to customer specifications

  • High Production Volume

  • Use Direct Sales Approach

  • Consumer Orders Often Taken Via the Internet


Definitions match2

Definitions Match

Direct Material

Salary, wages & benefits of employees directly making the product

Direct Labor

All manufacturing costs not in Direct Materials or Direct Labor

Manufacturing Overhead

Raw materials directly incorporated in the product


Definitions match3

Definitions Match

Indirect Material

Personnel costs of production workers not directly making the product

Indirect Labor

Do not do direct work on making the products

Materials needed for production but not an integral part of the product

Service Departments


How should the following costs be treated

How Should the Following Costs be Treated?

  • Overtime Premium

  • Idle Time


Illustrate prime conversions costs

Prime Costs

Conversion Costs

Illustrate Prime & Conversions Costs

Foreman


Describe illustrate manufacturing cost flows

Direct Materials

Direct Labor

Work-in-Process

Finished Goods

Cost of Goods Sold

Manufacturing Overhead

Describe & Illustrate Manufacturing Cost Flows


Define schedules of cost of goods manufactured cost of goods sold

Define Schedules of Cost of Goods Manufactured & Cost of Goods Sold

  • A detailed schedule showing all the costs put into manufacturing during the period. It shows the change in Work-in-Process Inventory & transfer to Finished Goods Inventory

  • Shows the expense Cost of Goods Sold & the change in Finished Goods Inventory


How are changes in inventory accounts shown

How are Changes in Inventory Accounts Shown?

All Inventories work basically the same.

Beginning balance: What’s on hand at the beginning of the time period

+ What’s acquired or put into the process

= What’s available for use, to complete or to sell

- Ending Inventory or what’s not used or completed or sold

=What’s Used, Completed or Sold


Describe the schedule of cost of goods manufactured

Describe the Schedule of Cost of Goods Manufactured

Raw Materials Inventory Analysis

Produces Raw Materials Used

Plus Direct Labor

Plus Factory Overhead

These Three Equal Total Manufacturing Cost the Input to Work-in-Process Inventory

Work-in-Process Inventory Analysis

Produces Cost of Goods Manufactured


Define describe the use of cost drivers

Define & Describe the Use of Cost Drivers

  • Activities are measures of product or service outputs

  • Cost drivers are activities that cause costs to be incurred

  • A cost driver is a characteristic of the activity

  • Desire high correlation


Match cost definitions

Match Cost Definitions

Direct

Costs a manager cannot significantly influence

Do direct work on making the products

Indirect

Cannot trace a cost directly to a department

Controllable

Costs a manager can significantly influence

Uncontrollable


Cost definitions match

Cost Definitions Match

Opportunity

Costs incurred in the past

The benefit sacrificed when choosing another choice

Sunk

The additional cost of another product or service

Differential

Total costs divided by total units produced

Marginal

Costs that differ between two alternatives

Average


This completes chapter 2

This Completes Chapter 2


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