Lecture Accounting: What the numbers mean (5/e) - Chapter 13: Cost accounting and reporting systems

After reading this chapter, you should be able to answer the following questions: What 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?...

entages – 130% of direct labor dollars • These overhead rates are assigned to the costs of the products produced McGrawưHill/Irwin âTheMcGrawưHillCompanies,Inc.,2002 Differences Between Actual and Applied Overhead ã The overhead rate is multiplied by the actual base used during the year • Any difference between the total applied overhead and the actual cost of overhead is transferred to cost of goods sold if immaterial • If the difference is material, the difference is divided between cost of goods sold and ending inventory McGrawưHill/Irwin âTheMcGrawưHillCompanies,Inc.,2002 Learning Objective ã What is the presentation and interpretation of a statement of cost of goods manufactured? McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002 Statement of Cost of Goods Manufactured • Manufacturing costs are summarized and reported in the statement of cost of goods manufactured • Total manufacturing costs include: – Raw materials used – Direct labor cost incurred – Manufacturing overhead applied McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002 Statement of Cost of Goods Manufactured – Continued • Total manufacturing costs incurred are added to beginning work in process inventory • Then ending work in process inventory is subtracted to arrive at cost of goods manufactured McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002 Firm XYZ Statement of Cost of Goods Manufactured For the Month of XX Raw Materials: Inventory, Beginning $XX Purchases for the month XX Raw materials available for use $XX Less: Inventory, Ending XX Cost of raw materials used Direct labor costs incurred for the month Manufacturing overhead applied for the month Total manufacturing cost for the month Add: Work in process, beginning Less: Work in process, ending Cost of goods manufactured for the month McGraw­Hill/Irwin $XX XX XX $XX XX XX $XX ©The McGraw­Hill Companies, Inc., 2002 Cost of Goods Sold • Cost of goods manufactured is added to beginning finished goods inventory to arrive at cost of goods available for sale • Ending finished goods inventory is subtracted from cost of goods available for sale to arrive at cost of goods sold McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002 Firm XYZ Statement of Cost of Goods Sold For the Month of XX Beginning inventory Cost of goods manufactured Cost of goods available for sale Less: Ending inventory Cost of goods sold McGraw­Hill/Irwin $XX XX $XX XX $XX ©The McGraw­Hill Companies, Inc., 2002 Firm XYZ Income Statement For the Month of XX Sales Cost of goods sold Gross profit Selling, general, and admin expenses Income from operations Interest expense Income before taxes Income tax expense Net income McGraw­Hill/Irwin $XX XX $XX XX $XX XX $XX XX $XX ©The McGraw­Hill Companies, Inc., 2002 Cost Accounting Systems • Job order costing systems are used when discrete products are manufactured • Costs are accumulated for each job in a job order system • Process costing systems are used when producing homogeneous products • Costs are accumulated by department in a process costing system McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002 ... is the difference between absorption and direct (or variable) costing? McGraw­Hill/Irwin ? ?The? ?McGraw­Hill Companies, Inc., 2002 Absorption Costing and Direct Costing • In absorption costing systems, ... a process costing system, costs are accumulated by department • The costs of the department are divided by the equivalent units processed by that department to find a cost per unit • The equivalent... Between Actual and Applied Overhead • The overhead rate is multiplied by the actual base used during the year • Any difference between the total applied overhead and the actual cost of overhead