Accounting Systems for Manufacturing Businesses Chapter 10 ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objectives After studying this chapter, you should be able to: • Describe the differences between financial and managerial accounting • Distinguish the activities of a manufacturing business from those of a merchandising or service business • Define and illustrate materials, factory labor, and factory overhead costs • Describe cost accounting systems used by manufacturing businesses • Describe and illustrate a job order cost accounting system • Use job order cost information for decision making • Describe the flow of costs for a service business that uses a job order cost accounting system • Describe just-in-time manufacturing practices • Describe and illustrate the use of activity-based costing in a service business ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objective Describe the differences between financial and managerial accounting ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Managerial Accounting • Focuses on recording and reporting information for use by a _ • It helps the _ to make _such as: • • • ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Financial and Managerial Accounting Exhibit 1: Financial and Managerial Accounting Differences ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objective Distinguish the activities of a manufacturing business from those of a merchandising or service business ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Nature of Manufacturing Businesses • Service firms earn revenue from providing _ • Merchandising firms earn revenue from selling _ • Manufacturing firms- • Earn revenue from _ and finished goods • Have three inventories: , , and _ ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objective Define and illustrate materials, factory labor, and factory overhead costs ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Illustrative Example • Costs can provide an immediate benefit or a benefit that is deferred to future periods Exhibit 2: Guitar Making Operations of Quixote Guitars ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Direct Material Cost • Include the cost of material to the product • It forms a significant portion of the _ of the product • For Quixote Guitars: cost of the wood used in producing each guitar will be the direct material cost • The cost of materials that are not an integral part of the finished product are called _ ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Just-In-Time versus Traditional Manufacturing Exhibit 16: Operating Principles of Just-in-Time versus traditional Manufacturing ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Reducing Inventory As the water level ( ) in the river drops, the rocks ( _) become visible ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Reducing Lead Times Exhibit 17: Components of Lead time ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Reducing Setup Time Setup equipment to make brown bags Setup equipment to make sky blue bags Setup equipment to make basic white bags ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Emphasizing Product-Oriented Layout • Product-oriented layout : _ _ • Process-oriented layout: ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Emphasizing Employee Involvement • Grants employees and _ to make decisions • Employees are often _ to perform any operation within a product cell ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Emphasizing Pull Manufacturing • Products manufactured only as they are needed by the customer • _: the Japanese system of pull manufacturing • Traditional manufacturing emphasizes push manufacturing ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Emphasizing Zero Defects • Eliminate poor quality • _ approach to zero defects ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Emphasizing Supply Chain Management • • • Electronic Data Interchange (EDI) Radio frequency identification devices (RFID) Enterprise Resource Planning (ERP) ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objective Describe and illustrate the use of activity-based costing in a service business ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Activity-Based Costing (ABC) • Uses multiple _ to allocate factory overhead more accurately than using a single, plant-wide rate • Costs are initially accounted for in cost pools – each cost pool has its own rate ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Cost Pools and Rates for Hopewell Hospital ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Overhead Allocation Using Activity Based Costing ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Profitability Report Using Activity Based Costing Exhibit 19: Customer Profitability Report ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part End of Chapter 10 ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part ... studying this chapter, you should be able to: • Describe the differences between financial and managerial accounting • Distinguish the activities of a manufacturing business from those of a merchandising... Direct Material Cost • Include the cost of material to the product • It forms a significant portion of the _ of the product • For Quixote Guitars: cost of the wood used in producing each... cost accounting systems used by manufacturing businesses • Describe and illustrate a job order cost accounting system • Use job order cost information for decision making • Describe the flow of