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Managerial Accounting: An Introduction To Concepts, Methods, And Uses


Managerial Accounting: An Introduction To Concepts, Methods, And Uses Chapter 2 Measuring Product Costs Maher, Stickney and Weil Learning Objectives (Slide 1 of 3 ... – PowerPoint PPT presentation

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Title: Managerial Accounting: An Introduction To Concepts, Methods, And Uses

Managerial Accounting An Introduction To
Concepts, Methods, And Uses
  • Chapter 2
  • Measuring Product Costs

Maher, Stickney and Weil
Learning Objectives (Slide 1 of 3)
  • Understand the nature of manufacturing costs.
  • Explain the need for recording costs by
    department and assigning costs to products.
  • Understand how the Work-in-Process account both
    describes the transformation of inputs into
    outputs in a company and accounts for the costs
    incurred in the process.

Learning Objectives (Slide 2 of 3)
  • Compare and contrast normal costing and actual
  • Know various production methods and the different
    accounting systems each requires.
  • Compare and contrast job costing and process
    costing systems.
  • Compare and contrast product costing in service
    organizations to that in manufacturing companies.

Learning Objectives (Slide 3 of 3)
  • Understand the concepts of customer costing and
    profitability analysis.
  • Identify ethical issues in job costing.
  • Recognize components of just-in-time (JIT)
    production methods and understand how accountants
    adapt costing systems to them.
  • Know how to compute end-of-period inventory book
    value using equivalent units of production
    (Appendix 2.1).

What are the three manufacturing costs?
Relation Between Departmental Costing Product
Costing (Slide 1 of 3)
  • Manufacturing costs are first assigned to
    departments or responsibility centers
  • A responsibility center is any organizational
    unit with its own manager
  • e.g., divisions, territories, plants
  • Aids in planning and performance evaluation

Relation Between Departmental Costing Product
Costing (Slide 2 of 3)
Record Costs for Performance Evaluation
Assign Costs To Products
Product A
Assembly Dept.
  • Direct Materials
  • Direct Labor
  • Manufacturing Overhead

Product B
Finishing Dept.
Relation Between Departmental Costing Product
Costing (Slide 3 of 3)
  • Actual manufacturing costs recorded in
    departments can be compared to standard or
    budgeted amounts
  • Differences, called variances, can be
    investigated further
  • Costs are then assigned to products
  • Useful in managerial decision-making such as
    evaluating product profitability

Draw the Flow of Costs through T-Accounts
Finished Goods Inventory
Cost of Goods Sold
Balance Sheet Accounts
Income Statement Accounts
Mktg. Admin.
What is the basic cost flow equation?
Cost Measures (Slide 1 of 2)Define Normal Costing
  • Normal Costing--commonly used to assign costs to
  • Assigns actual direct materials and direct labor
    plus normal manufacturing overhead
  • Overhead is applied to units produced using an
    application rate estimated before the accounting
    period begins

Cost Measures (Slide 2 of 2)Define Actual Costing
Applying Overhead Costs
  • Normal costing works as follows
  • Select a cost driver
  • Estimate overhead and the level of activity for
    the accounting period
  • Compute the predetermined manufacturing overhead
  • Apply overhead to production by multiplying the
    predetermined overhead rate times the actual

Overhead Rate Computation
  • Predetermined manufacturing overhead rate is
    calculated as follows
  • What is the equation?

Example-Overhead Rate Computation
  • Pizza Shack estimates that next year variable
    overhead will be 108,000 and direct labor will
    be 12,000 hours
  • The predetermined overhead rate for next year
    will be

Discuss Cost Systems
Production Methods and Accounting Systems
  • Type Production Accounting System Type Product
  • Job Job Costing Customized
  • (e.g.,
    Custom Homes)
  • Operations Operation Costing Mostly
  • Standardized
  • (e.g., Cars)
  • Continuous Flow Process Costing
  • Processing

  • (e.g., Oil

Comment on Job Costing
Comment on Process Costing
Comment on Operation Costing
Service Organizations
  • Flow of costs is similar to that of a
    manufacturing company
  • Providing a service requires labor, overhead,
    sometimes materials (called supplies)
  • Costs are collected by the job or client
  • Provides info for cost control, performance
    evaluation, and future pricing decisions

Review Ethical Issues in Job Costing
Just-In-Time (JIT) Methods
  • Attempt to obtain materials or provide finished
    goods just in time
  • Reduces or eliminates inventories and related
    carrying costs
  • May allow production costs to be recorded
    directly to Cost of Goods Sold (COGS)
  • May involve use of Backflush Costing
  • Used to transfer costs back to inventories when
    production costs are initially recorded as COGS

Spoilage Quality of Production
  • Normal waste is typically included in the cost of
    work performed
  • If waste is not normal it may be included in an
    expense account called Abnormal Spoilage
  • Companies concerned about quality production may
    not treat any waste or spoilage as normal
  • Prevents these costs from being buried in
    production costs

Computing Costs of Equivalent Production
  • What are the Five steps required to compute costs
    of products, ending inventory, and finished goods?

  • If you have any comments or suggestions
    concerning this PowerPoint Presentation for
    Managerial Accounting, An Introduction To
    Concepts, Methods, And Uses, please contact
  • Dr. Michael Blue, CFE, CPA, CMA
  • Bloomsburg University of Pennsylvania
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