Quản trị kinh doanh - Chapter three: Basic cost management concepts

Basic Cost Management ConceptsChapter Three3-2Understand the strategic role of basic cost concepts Explain cost-driver concepts at the activity, volume, structural, and executional levels Explain the cost concepts used in product and service costingDemonstrate how costs flow through the accounting systemPrepare and interpret an income statement for both a manufacturing firm and a merchandising firm Learning Objectives3-3Basic DefinitionsA cost is incurred when a firm uses a resource for some purposeCosts are assembled into meaningful groups called cost pools (e.g., by type of cost or source)Any factor that has the effect of changing the level of total cost is called a cost driverA cost object is any product, service, customer, activity, or organizational unit to which costs are assigned for some management purpose3-4 The process of assigning costs to cost pools or from cost pools to cost objectsDirect costs can be conveniently and economically traced to a cost pool or a cost objectIndirect costs cannot be traced conveniently or economically to a cost pool or a cost objectBecause indirect costs cannot be traced, assignment is made through the use of cost drivers (cost allocation)These cost drivers are often called allocation basesProduct/Service Costing: Cost Assignment3-5Cost Assignment: General Principles CostsElectric MotorMaterials HandlingSupervisionPackingMaterialsCost PoolsAssemblyPackingCost ObjectsDishwasherWashing MachineFinalInspectionCost Drivers and Cost Assignment3-6Direct and Indirect Product Costs for a ManufacturerDirect material costs = cost of materials that can be readily traced to outputs = purchase price of materials + freight – purchase discounts + reasonable allowance for scrap and defective unitsIndirect material costs = cost of materials that cannot readily be traced to outputs (e.g., rags, lubricants, and small tools)Direct labor costs = labor that can be readily traced to outputs = wages paid plus a reasonable allowance for nonproductive timeIndirect labor costs = labor costs that cannot be readily traced to outputs (i.e., they are manufacturing support costs)3-7Direct and Indirect Product Costs: (continued)All indirect costs for the manufacturer, including indirect materials, indirect labor, and other indirect items are often combined in a cost pool referred to as overhead (or, factory overhead, or indirect manufacturing costs) The three main types of costs, direct materials, direct labor, and overhead, are often condensed even further:Direct materials + Direct labor = Prime costsDirect labor + Overhead = Conversion costs3-8Cost Behavior: Cost DriversCost drivers provide two roles for the management accountantAssigning costs to cost objectsExplaining cost behavior, i.e., how total cost changes as the cost driver changesThere are four types of cost drivers:Activity-basedVolume-basedStructuralExecutional3-9Cost Drivers (continued) Activity-based cost (ABC) drivers are developed at a detailed level of operations using activity analysis–a cost driver is determined for each activityVolume-based cost drivers relate to the amount produced or quantity of service provided: The relationship between the cost driver and total cost is approximately linear within the relevant range3-10Fixed cost is the portion of total cost that does not change with changes in output Variable cost is the change in total cost associated with each change in quantity of the cost driverMixed cost is used to refer to a total cost figure that includes both a fixed and variable componentStep costs vary with the cost driver but do so in stepsVolume Based Cost Drivers: Classification by Behavior3-11Cost Drivers (continued)Structural cost drivers facilitate strategic decision making because they involve plans and decisions that have long-term effectsScale, experience, technology, and complexity are considered in hopes of improving competitive positionExecutional cost drivers facilitate operational decision making by focusing on short-term effectsWorkforce involvement, design of the production process, and supplier relationships are considered in an attempt to reduce costs 3-12Fixed Costs $6,600 $6,500 $3,000 3,500 3,600Units of the Cost Driver Total CostTotal Fixed Cost3-13Variable Costs Total Variable Cost $6,600 $6,500 $3,000 Units of the Cost Driver Total CostTotal Cost3,500 3,6003-14Product and Service Costing ConceptsProduct costs include only the costs necessary to complete the product at the manufacturing step in the value chain (manufacturing) or to purchase and transport the product to the location of sale (merchandising)Period costs (also called non-product costs) include all other costs incurred by the firm in managing or selling the product (indirect costs outside the manufacturing step of the value chain)3-15Manufacturing vs. Merchandising3-16Inventory and Related Expense Accounts3-17Qualitative Characteristics of Cost Information Accuracy (and the need to monitor internal accounting controls)Cost and value of cost information (the cost of information should be monitored by the management accountant to ensure that costs do not outweigh the associated benefits)Timeliness (often involves sacrificing in the other two areas)3-18Cost assignment: the tracing (direct) or allocation (indirect) of costs to cost pools using cost driversFour types of cost behavior (and cost drivers)Volume basedFixed costVariable costMixed costStep costActivity basedStructuralExecutionalChapter SummaryChapter Summary (continued)Product and service costing focuses on differentiating product costs from period costs Costs flow through three inventory accounts in a manufacturing firm(raw materials, work-in-process, finished goods inventory); merchandising firms have one inventory account (inventory held for sale)3-193-20End of cost terms...