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Previous Lecturer

Previous Lecturer. Ratio analysis Working capital is the excess of current assets over current liabilities Current ratio measures the short-term debt-paying ability of the company

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Previous Lecturer

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  1. Previous Lecturer • Ratio analysis • Working capital is the excess of current assets over current liabilities • Current ratio measures the short-term debt-paying ability of the company • Quick ratio is like the current ratio but excludes current assets such as inventories that may be difficult to quickly convert into cash

  2. Previous Lecturer • Debt ratio is a measure of creditor’s long-term risk • Uses and Limitations of Financial Ratios • Measures of Profitability • Return on Assets ratio is generally considered the best overall measure of a company’s profitability • This measure indicates how well the company employed the owners’ investments to earn income

  3. Previous Lecturer • Sources of Financial Information • Accounts Receivable Turnover • Number of Days’ Sales in Receivables • Inventory turnover • Number of Days’ Sales in Inventory • Ratio of Fixed Assets to Long-Term Liabilities • Ratio of Liabilities to Stockholders’ Equity • Number of Times Interest Charges Earned

  4. Previous Lecturer • Ratio of Net Sales to Assets • Rate Earned on Total Assets • Rate Earned on Stockholders’ Equity • Rate Earned on Common Stockholders’ Equity • Earnings Per Share on Common Stock • Price-Earnings Ratio • Dividend Yield on Common Stock

  5. Accounting Systems For Measuring Costs Chapter17

  6. Cost Accounting Systems Determining unitmanufacturingcosts. Planning andcontrolfunctions. Cost accounting systems provide information supporting decisions making the business successful. Assessing theefficiency andeffectivenessof operations. Providingproducts or services tocustomers.

  7. Cost Accounting Systems Evaluate andrewardemployeeperformance. Discloseinventoriesand cost ofgoods sold. Cost accounting systems are the proceduresand techniques used by management. Manage activitiesthat consumeresources. Track resourcesconsumed byproducts andservices.

  8. Used for production of large, unique, high-cost items. • Built to order rather than mass produced. • Many costs can be directly traced to each job. Basic Cost Accounting Procedures ProcessCosting Job OrderCosting

  9. Typical job order cost applications: • Special-order printing • Building construction • Also used in service industry • Hospitals • Law firms Basic Cost Accounting Procedures ProcessCosting Job OrderCosting

  10. Used for production of small, identical, low-cost items. • Mass produced in automated continuous production process. • Costs cannot be directly traced to each unit of product. Basic Cost Accounting Procedures ProcessCosting Job OrderCosting

  11. Typical process cost applications: • Petrochemical refinery • Paint manufacturer • Paper mill Basic Cost Accounting Procedures ProcessCosting Job OrderCosting

  12. Job Order Costing Manufacturingoverhead (OH) Applied to eachjob using apredeterminedrate (POHR) Directmaterials Traced directly to each job THE JOB Traced directly to each job Direct labor

  13. The primary document for tracking the costs associated with a given job is the job cost sheet. Let’s investigate Job Order Costing

  14. The Job Cost Sheet

  15. The Job Cost Sheet

  16. Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee. The Job Cost Sheet

  17. Applymanufacturing overhead to jobs using apredetermined overhead rate (POHR) based on direct labor hours (DLH). The Job Cost Sheet

  18. Job Order CostingDocument Flow Summary Let’s summarize the document flow we have been discussing in a job order costing system.

  19. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Manufacturing Overhead Account Job Order CostingDocument Flow Summary The materials requisition indicates the cost of direct materialto charge tojobsand the cost of indirect material to charge to overhead. Direct materials Materials Ledger Cards Materials Ledger Cards Materials Ledger Cards MaterialsRequisition Indirect materials

  20. Job Order CostingDocument Flow Summary Direct Labor Employee time tickets indicate the cost of direct laborto charge tojobsand the costofindirect labor to charge to overhead. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Employee Time Ticket Employee Time Ticket Employee Time Ticket Employee Time Ticket Manufacturing Overhead Account Indirect Labor

  21. Job Order CostingDocument Flow Summary IndirectLabor EmployeeTime Ticket Overhead AppliedwithPOHR OtherActual OHCharges Manufacturing Overhead Account Job Cost Sheets MaterialsRequisition IndirectMaterial

  22. Flow of Costs in Job Costing Flow of Costs in Job Costing Let’s examine the cost flows in ajob order costing system. We will use T-accounts and start with materials.

  23. Flow of Costs in Job Costing Work in Process(Job Cost Sheet) Materials Inventory • Direct Material • Direct Material • Material • Purchases • Indirect Material Mfg. Overhead • Indirect Material

  24. Flow of Costs in Job Costing Next let’s add labor costs and applied manufacturing overhead to the job order cost flows. Are you with me?

  25. When Actual Applied factory factoryoverhead overhead / = the difference is closed to cost of goods sold. Flow of Costs in Job Costing Work in Process(Job Cost Sheet) Labor • Direct Labor • Direct Material • IndirectLabor • Direct Labor • Overhead Applied Mfg. Overhead • Indirect Material • OverheadApplied to Work inProcess • IndirectLabor

  26. Closing Under- or OverappliedManufacturing Overhead

  27. Flow of Costs in Job Costing Now let’s complete the goods and sell them. Still with me?

  28. Flow of Costs in Job Costing Work in Process(Job Cost Sheet) Finished Goods • Direct Material • Cost ofGoodsMfd. • Cost ofGoodsMfd. • Cost ofGoodsSold • Direct Labor • Overhead Applied Cost of Goods Sold • Cost ofGoodsSold

  29. Process Costing • Used for production of small, identical, low-cost items. • Mass produced in automated continuous production process. • Costs cannot be directly traced to each unit of product.

  30. Job Costing Custom orders Heterogeneous products Low production volume High product flexibility Low to medium standardization Process Costing Repetitive production Homogeneous products High production volume Low product flexibility High standardization Comparing Job and Process Costing

  31. Job and Process Costing The Work in Process account consists of individual jobsinjob costing. DirectMaterials DirectLabor FinishedGoods Jobs FactoryOverhead Cost per unit for each job

  32. Job and Process Costing The Work in Process account consists of specific processesin process costing. DirectMaterials DirectLabor FinishedGoods Processes FactoryOverhead Cost per unit processed

  33. Same objective: to determine the cost of products Same inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method:predetermined rate times actual activity Job and ProcessCosting Similarities

  34. Work in Process Accounts — The Key to Process Costing Direct Materials Work in ProcessAssembly Indirect Work in ProcessPackaging FinishedGoods FactoryOverhead AppliedOverhead Indirect DeliveredtoCustomers Direct Labor

  35. Costs are accumulated for a period of time by process or department. Computing Unit Cost Unit cost is computed by dividing the accumulated costs by the number of units produced in the period.

  36. Computing Unit Cost Costs are accumulated for a period of time by process or department. Unit cost is computed by dividing the accumulated costs by the number of units produced in the period. If partially complete units remain in process, we must use equivalent units as the divisor to obtain unit costs.

  37. Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. + = Computing and Using Equivalent Units of Production Twoone-half full pitchers are equivalent to one full pitcher. 1

  38. Question For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period? a. 10,000 b. 11,500 c. 1,500 d. 15,000

  39. Question For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period? a. 10,000 b. 11,500 c. 1,500 d. 15,000 10,000 units + (5,000 units × .30) = 11,500 equivalent units

  40. Cost perequivalent unit Product costs for the periodEquivalent units for the period = Cost Per Equivalent Unit

  41. Question Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90

  42. Question Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit

  43. Equivalent Units 40% ofMaterial Equivalent units may be different for material and labor and overhead at different stages of a process. Stage 1 25% ofLabor andOverhead At completion of Stage 1 of the process, materialis 40% complete, but labor and overhead are only25% complete.

  44. Equivalent Units 40% ofMaterial 60% ofMaterial + = 100% Stage 1 Stage 2 25% ofLabor andOverhead 25% ofLabor andOverhead = + 50%

  45. Equivalent Units 40% ofMaterial 60% ofMaterial Stage 1 Stage 2 Stage 3 25% ofLabor andOverhead 25% ofLabor andOverhead 50% ofLabor andOverhead The process is now complete.

  46. End of Todays Session

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