Kế toán, kiểm toán - Chapter 13: Cost accounting and reporting systems

CHAPTER 13COST ACCOUNTING AND REPORTING SYSTEMS McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhat is the role of cost accounting as it relates to financial and managerial accounting?How does cost management play a strategic role in the organization’s value chain?What is the difference between direct and indirect costs, and how do they relate to a product or activity?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhat is the difference between product costs and period costs, and what are the three components of product cost?What is the general operation of a product costing system, and how do costs flow through the inventory accounts to cost of goods sold?How are predetermined overhead application rates developed and used?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhat is the presentation and interpretation of a statement of cost of goods manufactured?What is the difference between absorption and direct (or variable) costing?What are activity based costing and activity based management?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 1What is the role of cost accounting as it relates to financial and managerial accounting?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost AccountingCost accounting is a subset of managerial accountingDeals primarily with the accumulation and determination of product, process, or service costsThe primary purpose is income measurement and inventory valuation in accordance with generally accepted accounting principles for external financial reportingMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Uses of Costing SystemsNeed accurate costing information for:Pricing decisionsEvaluating productivity and efficiencyDeveloping operating budgetsDetermining which product parts will be manufactured internallyAnalyzing production technologyAppraising performanceMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 2How does cost management play a strategic role in the organization’s value chain?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Strategic, Operational, and Financial PlanningPlanning and Control CyclePerformance Analysis: Plans vs. Actual Results (Controlling)Executing Operational Activities (Managing)Revisit PlansImplement PlansData Collection and Performance FeedbackMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost ManagementCost management is the processof using cost information from the accounting system to manage the activities of the organizationAccurate and timely information is critical to the success of the decision-making processAn organization’s value chain is the sequence of functions and related activities that adds value for the customerMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Value Chain FunctionsResearch and Development – cost of generating new ideasDesign – can we make a product at a reasonable cost?Production – cost of making the productMarketing – cost of promoting the productDistribution – cost of deliveryCustomer service – cost of after-sales supportMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost Accumulation and AssignmentCosts are incurred in carrying out each activity in the value chainA cost object is a reference point (job, machine, product line, etc.) where a need to understand costs existsCost accumulation is the process of collecting and recording transaction dataCost assignment is the process of attributing an appropriate amount of cost in the cost pool to each cost objectMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost Object$$$’s Cost PoolCost ObjectCost ObjectCost AssignmentMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 3What is the difference between direct and indirect costs, and how do they relate to a product or activity?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost Relationship to Product or ActivityDirect cost and indirect cost classifications depends on the contextA direct cost is a cost that would NOT be incurred if the product or activity were discontinuedAn indirect cost is one that would continue to be incurred even if the product or activity were discontinuedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 4What is the difference between product costs and period costs, and what are the three components of product cost?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Costs for Cost Accounting PurposesProduct costs are used in manufacturing and merchandising firms to determine inventory valuesRaw materialsDirect laborManufacturing overheadPeriod costs as those costs not included in inventory as product costsPeriod costs are reported on the income statement as they are incurredMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Product CostsRaw materials – the ingredients of a productDirect labor – the effort provided by workers who are directly involved with the manufacture of the productManufacturing overhead – includes all manufacturing costs except raw materials and direct laborMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 5What is the general operation of a product costing system, and how do costs flow through the inventory accounts to cost of goods sold?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost Accounting SystemsEvery manufacturing firm uses a cost accounting system to accumulate the cost of products madeThe system involves three inventory accounts:Raw material inventoryWork in process inventoryFinished goods inventoryMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Inventory AccountsRaw materials – cost of parts used in the manufacturing processWork in process – used to accumulate all manufacturing costs (raw materials, direct labor, manufacturing overhead) while the product is in processingFinished goods – cost of goods completedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Raw Materials InventoryWork in Process InventoryFinished Goods InventoryCost of Goods SoldPurchases of raw materialsMaterials used in productionMaterials usedDirect labor incurredManufacturing overhead appliedCost of products manufacturedCost of goods manufacturedCost of manufactured goods soldCost of goods sold as an expense on the income statementMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 6How are predetermined overhead application rates developed and used?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Overhead ApplicationManufacturing overhead is all costsof a product except raw materials and direct laborAssigning overhead costs presents a challengeMost systems apply overhead by using a single, or few, surrogate measures of overhead behaviorThe assumption is that since products are being made, overhead costs are being incurredMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Overhead Application BasesAn estimate of total overhead is made a the beginning of the yearA base is selected to apply overheadDirect labor hoursDirect labor dollarsMachine hoursThe estimated overhead cost is divided by the total estimated base for the year – thus producing an overhead rateMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Overhead Application RatesThe overhead application rate may be stated in dollars - $6.00 per machine hour usedThe overhead application rate may be stated in percentages – 130% of direct labor dollarsThese overhead rates are assigned to the costs of the products producedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Differences Between Actual and Applied OverheadThe overhead rate is multiplied by the actual base used during the yearAny difference between the total applied overhead and the actual cost of overhead is transferred to cost of goods sold if immaterialIf the difference is material, the difference is divided between cost of goods sold and ending inventoryMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 7What is the presentation and interpretation of a statement of cost of goods manufactured?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Statement of Cost of Goods ManufacturedManufacturing costs are summarized and reported in the statement of cost of goods manufacturedTotal manufacturing costs include:Raw materials usedDirect labor cost incurredManufacturing overhead appliedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Statement of Cost of Goods Manufactured – ContinuedTotal manufacturing costs incurred are added to beginning work in process inventoryThen ending work in process inventory is subtracted to arrive at cost of goods manufacturedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Firm XYZStatement of Cost of Goods ManufacturedFor the Month of XXRaw Materials: Inventory, Beginning $XX Purchases for the month XX Raw materials available for use $XX Less: Inventory, Ending XX Cost of raw materials used $XXDirect labor costs incurred for the month XXManufacturing overhead applied for the month XXTotal manufacturing cost for the month $XXAdd: Work in process, beginning XXLess: Work in process, ending XXCost of goods manufactured for the month $XX McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost of Goods SoldCost of goods manufactured is added to beginning finished goods inventory to arrive at cost of goods available for saleEnding finished goods inventory is subtracted from cost of goods available for sale to arrive at cost of goods soldMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Firm XYZStatement of Cost of Goods SoldFor the Month of XXBeginning inventory $XXCost of goods manufactured XXCost of goods available for sale $XXLess: Ending inventory XXCost of goods sold $XX McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Firm XYZIncome StatementFor the Month of XXSales $XXCost of goods sold XXGross profit $XXSelling, general, and admin. expenses XXIncome from operations $XXInterest expense XXIncome before taxes $XXIncome tax expense XXNet income $XX McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost Accounting SystemsJob order costing systems are used when discrete products are manufacturedCosts are accumulated for each job in a job order systemProcess costing systems are used when producing homogeneous productsCosts are accumulated by department in a process costing system McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Equivalent Units of ProductionIn a process costing system, costs are accumulated by departmentThe costs of the department are divided by the equivalent units processed by that department to find a cost per unitThe equivalent units of production is the number of units that would have been produced if all production efforts had resulted in complete productsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 8What is the difference between absorption and direct (or variable) costing?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Absorption Costing and Direct CostingIn absorption costing systems, all manufacturing costs incurred are absorbed into the product costDirect costing (or variable costing) assigns only variable costs to productsIn direct costing, fixed manufacturing overhead is treated as an operating expenseAbsorption costing must be used for financial reporting and tax purposesMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 9What are activity based costing and activity based management?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Activity-Based CostingOverhead costs have become increasing significant due to technological innovationsAs a result, overhead application rates have been applied using activity-based costingIn activity-based costing, an activity must be identified that causes the incurrence of a costMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost DriversExamples of cost drivers include:Machine setupQuality inspectionProduction order preparationMaterials handling activitiesActivity-based costing is a complex processActivity-based costing had led to more accurate costingMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Activity-Based ManagementActivity-based management is the use of activity-based costing information to support the decision making processCan be relevant to customer satisfaction, operational productivity and efficiency, product or process design, product mixActivity-based management has led to better decisionsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002