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Khalid Aziz ACCOUNTING OF ICMAP, CA..B,C & D, PIPFA, BBA, MBA, M.COM, B.COM 0322-3385752 PowerPoint PPT Presentation


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Khalid Aziz ACCOUNTING OF ICMAP, CA..B,C & D, PIPFA, BBA, MBA, M.COM, B.COM 0322-3385752. Cost Management Systems and Activity-Based Costing. JOIN KHALID AZIZ. COACHING CLASSES OF CA MODULE B & D. FA, ECONOMICS & COST ACCOUNTING. CONTACT NOW. 0322-3385752. JOIN KHALID AZIZ.

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Khalid aziz accounting of icmap ca b c d pipfa bba mba m com b com 0322 3385752

Khalid AzizACCOUNTING OF ICMAP, CA..B,C & D, PIPFA, BBA, MBA, M.COM, B.COM0322-3385752

Cost Management Systems

and Activity-Based Costing

Khalid Aziz--0322-3385752


Join khalid aziz

JOIN KHALID AZIZ

  • COACHING CLASSES OF CA MODULE B & D.

  • FA, ECONOMICS & COST ACCOUNTING.

  • CONTACT NOW.

  • 0322-3385752

Khalid Aziz--0322-3385752


Join khalid aziz1

JOIN KHALID AZIZ

  • FRESH CLASSES OF B.COM 1 & 2

  • ALL IMPORTANT SUBJECTS

  • COMPLETION OF SYLLABUS

  • JOIN NOW

Khalid Aziz--0322-3385752


Join khalid aziz2

JOIN KHALID AZIZ

  • ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 (NEW CLASSES)CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752http://finance.groups.yahoo.com/group/cost-accountants

Khalid Aziz--0322-3385752


Learning objective 1

Describe the purposes of

cost management systems.

Learning Objective 1

Khalid Aziz--0322-3385752


Cost management system

Cost Management System

A cost-management system(CMS) is a

collection of tools and techniques that

identifies how management’s decisions

affect costs.

Khalid Aziz--0322-3385752


What is cost accounting

What is Cost Accounting?

Costaccounting is that part of the

accounting system that measures costs

for the purposes of management decision

making and financial reporting.

Khalid Aziz--0322-3385752


Learning objective 2

Explain the relationships

among cost, cost objective,

cost accumulation, and

cost allocation.

Learning Objective 2

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Cost accounting system

Cost Accounting System

Collecting costs by some

“natural” classification

such as materials or labor

Cost

Accumulation

Cost

Allocation

Tracing costs to one or

more cost objectives

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Cost accounting system1

Cost Accounting System

RAW MATERIAL

COSTS (METALS

Cost Accumulation

Cost Allocation

to Cost Objects:

1. Departments

2. Activities

3. Products

MACHINING

DEPARTMENT

ACTIVITYACTIVITY

FINISHING

DEPARTMENT

ACTIVITYACTIVITY

CABINETS

CABINETS

DESKS

DESKS

TABLES

TABLES

Khalid Aziz--0322-3385752


Khalid aziz accounting of icmap ca b c d pipfa bba mba m b 0322 3385752

Cost

  • A cost may be defined as a sacrifice or giving up of resources for a particular purpose.

  • Costs are frequently measured by the monetary units that must be paid for goods and services.

Khalid Aziz--0322-3385752


Cost objective

Cost Objective

What is a cost object or cost objective?

It is anything for which a separate measurement

of costs is desired.

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Learning objective 3

Distinguish among direct,

indirect, and unallocated costs.

Learning Objective 3

Khalid Aziz--0322-3385752


Direct costs

Direct Costs

What are direct costs?

Direct costs can be identified specifically

and exclusively with a given cost

objective in an economically

feasible way.

Khalid Aziz--0322-3385752


Indirect costs

Indirect Costs

What are indirect costs?

Indirect costs cannot be identified

specifically and exclusively with a

given cost objective in an economically

feasible way.

Khalid Aziz--0322-3385752


What distinguishes direct and indirect costs

What Distinguishes Direct and Indirect Costs?

  • Managers prefer to classify costs as direct rather than indirect whenever it is “economically feasible” or “cost effective.”

  • Other factors also influence whether a cost is considered direct or indirect.

  • The key is the particular cost objective.

Khalid Aziz--0322-3385752


Categories of manufacturing costs

Categories of Manufacturing Costs

Any raw material, labor, or other input

used by any organization could,

in theory, be identified as a

direct or indirect cost

depending on the

cost objective.

Khalid Aziz--0322-3385752


Join khalid aziz3

JOIN KHALID AZIZ

  • ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 (NEW CLASSES)CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752http://finance.groups.yahoo.com/group/cost-accountants

Khalid Aziz--0322-3385752


Categories of manufacturing costs1

Categories of Manufacturing Costs

  • All costs which are eventually allocated to products are classified as either…

  • direct materials,

  • direct labor, or

  • indirect manufacturing.

Khalid Aziz--0322-3385752


Direct material costs

Direct Material Costs...

  • include the acquisition costs of all materials that are physically identified as a part of the manufactured goods and that may be traced to the manufactured goods in an economically feasible way.

Khalid Aziz--0322-3385752


Direct labor costs

Direct Labor Costs...

  • include the wages of all labor that can be traced specifically and exclusively to the manufactured goods in an economically feasible way.

Khalid Aziz--0322-3385752


Indirect manufacturing costs

Indirect Manufacturing Costs...

  • or factoryoverhead, include all costs associated with the manufacturing process that cannot be traced to the manufactured goods in an economically feasible way.

Khalid Aziz--0322-3385752


Product costs

Product Costs...

  • are costs identified with goods produced or purchased for resale.

  • Product costs are initially identified as part of the inventory on hand.

  • These costs, inventoriable costs, become expenses (in the form of cost of goods sold) only when the inventory is sold.

Khalid Aziz--0322-3385752


Period costs

Period Costs...

  • are costs that are deducted as expenses during the current period without going through an inventory stage.

Khalid Aziz--0322-3385752


Period or product costs

Period or Product Costs

  • In merchandising accounting, insurance, depreciation, and wages are period costs (expenses of the current period).

  • In manufacturing accounting, many of these items are related to production activities and thus, as indirect manufacturing, are product costs.

Khalid Aziz--0322-3385752


Period costs merchandising and manufacturing

Period Costs – Merchandising and Manufacturing

  • In both merchandising and manufacturing accounting, selling and general administrative costs are period costs.

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Learning objective 4

Explain how the financial

statements of merchandisers

and manufacturers differ

because of the types of goods

they sell.

Learning Objective 4

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Financial statement presentation merchandising companies

Financial Statement Presentation– Merchandising Companies

Income Statement

Balance Sheet

Sales

Expiration

Merchandise

Inventory

Cost of Goods Sold

(an expense)

Equals Gross Margin

Selling and

Administrative

Expenses

Period

Costs

Equals Operating Income

Khalid Aziz--0322-3385752


Financial statement presentation manufacturing companies

Financial Statement Presentation– Manufacturing Companies

Income Statement

Balance Sheet

Sales

Direct

Material

Inventory

Expiration

Cost of Goods Sold

(an expense)

Equals Gross Margin

Work-in-

Process

Inventory

Finished

Goods

Inventory

Selling and

Administrative

Expenses

Period

Costs

Equals Operating Income

Khalid Aziz--0322-3385752


Costs and income statements

Costs and Income Statements

  • On income statements, the detailed reporting of selling and administrative expenses is typically the same for manufacturing and merchandising organizations, but the cost ofgoods sold is different.

Khalid Aziz--0322-3385752


Cost of goods sold for a manufacturer

Cost of Goods Sold for a Manufacturer

  • The manufacturer’s cost of goods produced and then sold is usually composed of the three major categories of cost:

  • Direct materials

  • Direct labor

  • Indirect manufacturing

Khalid Aziz--0322-3385752


Cost of goods sold for a retailer or wholesaler

Cost of Goods Soldfor a Retailer or Wholesaler

  • The merchandiser’s cost of goods sold is usually composed of the purchase cost of items, including freight-in, that are acquired and then resold.

Khalid Aziz--0322-3385752


Learning objective 5

Understand the main

differences between traditional

and activity-based costing

systems and why ABC systems

provide value to managers.

Learning Objective 5

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Traditional cost system

Traditional Cost System

Direct

Material

Resource

Direct

Labor

Resource

All

Indirect

Resources

All

Unallocated

Value Chain

Costs

Direct

Trace

Direct

Trace

Cost

Driver

Products

Unallocated

Khalid Aziz--0322-3385752


Two stage activity based cost system

Two-Stage Activity-BasedCost System

Direct

Material

Resource

Direct

Labor

Resource

Other

Direct

Resources

Indirect

Resource

A

Indirect

Resource

Z

All

Unallocated

Value Chain

Costs

%

%

%

%

Direct

Trace

Direct

Trace

Activity

1

Activity

10

Cost

Driver

Cost

Driver

Products

Unallocated

Khalid Aziz--0322-3385752


Activity based costing

Activity-Based Costing

Understanding the relationships among activities, resources, costs, and cost drivers is the key to understanding ABC and how ABC facilitates managers’ understanding of operations.

Khalid Aziz--0322-3385752


Activity based costing1

Activity-Based Costing

Example of Activities and Cost Drivers:

Activities:

Account billing

Bill verification

Account iniquity

Correspondence

Cost Drivers:

No. of lines

No. of accounts

No. of labor hours

No. of letters

Khalid Aziz--0322-3385752


Learning objective 6

Learning Objective 6

Identify the steps involved in the

design and implementation

of an activity-based

costing system.

Khalid Aziz--0322-3385752


Designing and implementing an activity based costing system

Designing and Implementing an Activity-Based Costing System

Step 1

Step 2

Determine cost of

activities, resources,

and related cost

drivers.

Develop a process-based

map representing the flow

of activities, resources, and

their interrelationships.

Khalid Aziz--0322-3385752


Designing and implementing an activity based costing system1

Designing and Implementing an Activity-Based Costing System

Step 3

Collect relevant data concerning costs

and the physical flow of the cost-driver

units among resources and activities.

Khalid Aziz--0322-3385752


Designing and implementing an activity based costing system2

Designing and Implementing an Activity-Based Costing System

Step 4

Calculate and interpret the new

activity-based information.

Using an activity-based costing system to

improve the operations of an organization

is activity-basedmanagement(ABM).

Khalid Aziz--0322-3385752


Activity based management

Activity-Based Management

Activity-based management aims to improve the value received by customers and to improve profits by identifying opportunities for improvements in strategy and operations.

Khalid Aziz--0322-3385752


Activity based management1

Activity-Based Management

  • A value-added costis the cost of an activity that cannot be eliminated without affecting a product’s value to the customer.

  • In contrast, non-value-added costsare costs that can be eliminated without affecting a product’s value to the customer.

Khalid Aziz--0322-3385752


Learning objective 7

Use activity-based cost

information to improve the

operations of an organization.

Learning Objective 7

Khalid Aziz--0322-3385752


Using abc information

Using ABC Information

Activity-based management…

provides costs of value-added and

non-value-added activities.

improves managers’ understanding of operations.

Khalid Aziz--0322-3385752


Learning objective 8

Understand cost accounting’s

role in a company’s

improvement efforts across

the value chain.

Learning Objective 8

Khalid Aziz--0322-3385752


Cost accounting and the value chain

Cost Accounting andthe Value Chain

A good cost accounting system is critical to

all value-chain functions from research and

development through customer service.

Khalid Aziz--0322-3385752


Join khalid aziz4

JOIN KHALID AZIZ

  • ACCOUNTING(FINANCIAL & COST) OFICMAP STAGE 1,2,3,4 (NEW CLASSES)CA..MODULE B,C,DPIPFA (FOUNDATION,INTERMEDIATE,FINAL)ACCA-F1,F2,F3BBA,MBAB.COM(FRESH),M.COMMA-ECONOMICS..O/A LEVELSKHALID AZIZ…..0322-3385752http://finance.groups.yahoo.com/group/cost-accountants

Khalid Aziz--0322-3385752


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