Transcript
7/27/2019 cost object
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Agenda
• Review: Some vocabulary, cost behavior,
simple (traditional) product costing, the
flow of costs through a manufacturer’s
accounts
• Overview of Tuesday’s class.
• Quiz: Learning with Cases
• Group exercise: product costing, cost flow,
cost behavior
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Cost Concepts
• Important vocabulary• resources
• costs
• cost object
• direct costs
• indirect costs
• fixed costs• variable costs
• product costs
• overhead
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Costing inventory and sales
• Resources = assets
• Costs = use or sacrifice of resources
• Product costs = manufacturing costs
(GAAP) – direct (e.g., DM and DL)
• variable or fixed
• traceable – indirect (overhead - O/H)
• variable
• fixed
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Components of Product Costs
• Direct material
• Direct labor • Indirect manufacturing costs (O/H)
– Cost pool/s
– Factory costs – May vary, but not always with units of
production
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Direct vs. Indirect Costs
• Cost object: The item we are trying to
determine a cost for (product, factory,headquarters, CEO)
• A cost can be categorized as direct or
indirect only after the cost object has beendefined.
• A cost that is a direct factory cost may be
an indirect product cost.
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Direct vs. Indirect Costs
• Direct costs can be either fixed or variable.
• Indirect costs can be either fixed or variable
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Fixed cost behavior
Total Cost
Production Volume
Fixed mfg.costs = $100,000
• Example: Variable cost/unit = $1
• Fixed costs are budgeted at $100,000• Production volume = 1
• Production volume = 100,000
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Fixed manufacturing cost behavior
Unit costs
Production Volume
Unit fixed manufacturing
costs vary with production
volume
• Example: Fixed manufacturing
costs = $100,000
• Production volume = 1, or
• Production volume = 100,000
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Variable costs
Total cost
Production volume
• Example:
Variable cost/unit = $1
• Production volume = 1
• Production volume = 100,000
Total variable costs
increase with
production volume
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• Retainer paid to video distributor
• Electricity costs of the HEC store
• Cost of videos purchased
• Subscription to Video Trends
• Computer leased for HEC store
• Cost of free popcorn for customers
• Earthquake insurance for store
• Freight-in costs of videos
D or I V or F
D FI F
D V
D F
I F
I V
I F
D V
Home Entertainment Center operates a large store in San
Francisco. The store has both a video section and a musical
section. HEC reports revenues for the video section separately
from the musical section. Classify direct and indirect and
variable and fixed costs with respect to the video section.
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Other cost concepts
• Outlay costs• Opportunity costs
• Differential costs
• Sunk costs
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Traditional Product Costing
• DL = $3 per unit, DM = $2 per unit
• Labor costs $3 per hour, 500,000 units aremanufactured; 505,000 DL hours are used.
• What is a unit of product expected to cost?
• How much did the company spend building 500,000 units?
• How much would would we expect them
to spend building 400,000 units?
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Other important concepts
• Contribution margin
• Gross margin
• What is the difference between the two?
• Which one would you look at to decide
what product to manufacture?
• Which one would you expect to see on an
income statement?
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Who uses cost accounting
information?
• Cost of goods sold, inventories financial
statements.
• Bids, product pricing managers
• Budgeting, production scheduling
managers
• Can the same cost system serve both
masters? Should it?
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Tuesday
• Cost-Volume-Profit analysis - a simple
decision model.• Lecture and demonstration problems
• Group exercise that is a little tough.
• Cost-Volume-Profit analysis is required for the Prestige Telephone Company case next
Thursday.
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