Cost Concepts.ppt

7/24/2019 Cost Concepts.ppt

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Learning Objectives

LO1- Define Cost

LO2- Distinguish between Financial & Managerial Accounting

LO3-State the goals of Managerial Accounting.

LO- Define cost ter!s use" in #lanning$ control$ an" "ecision !a%ing.

LO-'"entif( the cost co!#onents of a #ro"uct !a"e b( a !anufacturing co!#an() the costof !aterials$ labor & o*erhea"

LO+-,#lain the effects on the financial state!ents of #ro"uct costs *ersus #erio" costs.

LO-Distinguish #ro"uct costs fro! u#strea! & "ownstrea! costs

LO/-,#lain how #ro"uct costing "iffers in ser*ice$ !erchan"ising & !anufacturingco!#anies

LO0-) Describe how "irect !aterial$ "irect labor$ an" !anufacturing o*erhea" are assigne" toobs.

LO1-,#lain the role of a #re"eter!ine" o*erhea" rate in a##l(ing o*erhea" to obs


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Cost & CostAccounting

Cost

is a resource sacrifice" or forgone to achie*e

a s#ecific obecti*e.

Actual cost a cost that has occurred

Budgeted cost a predicted cost Cost object anything of interest for which a cost isdesired

Cost accounting is concerne" with recor"ing$ classif(ing an"su!!ari4ing costs for "eter!ination of costs of #ro"ucts or

ser*ices$ #lanning$ controlling an" re"ucing such costs an"

furnishing of infor!ation to !anage!ent for "ecision !a%ing


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Comparing Managerial Accounting &

Financial Accounting

's !eant #ri!aril( for internal users while financial accounting is !eant foreternal users.

's !ore fleible 5 !ore "etaile"

Does not focus on generall( acce#te" accounting #rinci#les 67AA89

:as a future rather than #ast focus

's !ore ti!el(

,!#hasi4es #arts of a co!#an( 6the "etails9$ rather than the whole

co!#an(

,!#hasi4es both ;ualitati*e an" ;uantitati*e infor!ation


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Cost & 8rofit as a #ercentage of total inco!e

6


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Cost Terms

=he ter! >cost? a##ears in !an( contets an"

carries a nu!ber of !eanings.

Different categories of cost ter!s are !erel(

"ifferent wa(s to loo% at costs or to slice an" "ice

cost infor!ation. =he( are not necessaril(

co!#le!entar( to or !utuall( eclusi*e of other

cost categories.


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Cost Classication Elements

Direct Material Direct Labour Direct Epense !"erhead

Behaviour Pattern #ied Cost $ariable Cost %ei $ariable Cost

Function Wise

'roduct Cost Adinistrati"e Cost %elling Cost Distribution Cost (esearch & De"elopent Cost


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Normality

)oral Cost Abnoral Cost

Financial accounting classifcation Capitali*ed Cost 'roduction Cost 'eriod Costs

Managerial decision making Marginal Cost %un+ Cost

Coitted Costs !pportunity Cost ,ncreental Cost A"oidable & -na"oidable Cost Controllable & )on Controllable Costs


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Variable & Fixed Cost

@ariable costs) costs that increase or "ecrease6in total9 relati*e to increases or "ecreases in

the le*el of business acti*it(.

Fie" costs) costs that "o not change 6in total9

relati*e to changes in business acti*it(.


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Sunk Cost

So!eti!es calle" >#ast costs.? =hese costs are

O= rele*ant to the "ecision !a%ing #rocess.


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Opportunit Cost

=hese are the *alues of #otentialbenefits foregone when a "ecision is

!a"e.


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!irect & "ndirect Cost

Direct costs) costs that are "irectl( traceable to

so!e obect such as a #ro"uct$ acti*it( or

"e#art!ent.

'n"irect costs) costs that are O= "irectl(

traceable to a #ro"uct$ acti*it( or "e#art!ent#


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Controllable and $on%controllable

Costs

Bet another wa( to slice an" "ice costs. =his ti!e it hasto "o with the "egree of influence a !anager has o*er

the cost.

'f a !anage!ent "ecision can i!#act the cost in the

short ter!$ it is consi"ere" controllable.Con*ersel($ if a !anager cannot influence 6control9 the

cost in the short ter!$ then it is non controllable.

A !anagers #erfor!ance shoul" O= inclu"e an

assess!ent of non controllable costs.


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.ypes of 'roduct Costs

Also +nown as ,n"entoriable Costs

Direct Materials

Direct Labor

,ndirect Manufacturing factory coststhat are not traceable to the product/!ther coon naes for this type of

cost include Manufacturing !"erheadcosts or #actory !"erhead costs/


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Accounting Distinction

Between Costs ,n"entoriable costs product

anufacturing costs/ .hese costsare capitali*ed as assets 0in"entory1until they are sold and transferred toCost of 2oods %old/

'eriod costs ha"e no future "alueand are epensed as incurred/


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Basic Costing.erinology3

%e"eral +ey points fro priorchapters4

Cost !bjects 5 including responsibility

centers6 departents6 custoers6products6 etc/

Direct costs and tracing aterials and

labor ,ndirect costs and allocation 5 o"erhead


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3logically etended

Cost 'ool any logical grouping of relatedcost objects

Cost5allocation base a cost dri"er is used

as a basis upon which to build a systeaticethod of distributing indirect costs/ #or eaple6 let7s say that direct labor hours cause

indirect costs to change/ Accordingly6 direct labor

hours will be used to distribute or allocate costsaong objects based on their usage of that costdri"er


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Costing %ystes Costing %ystes8Methods are used to

deterine cost per unit of output forin"entory "aluation/

9ob5Costing4 syste accounting for distinct

cost objects called 9obs/ Each job ay bedi:erent fro the net6 and consuesdi:erent resources ;edding announceents6 aircraft6 ad"ertising

'rocess5Costing4 syste accounting for assproduction of identical or siilar products !il rening6 orange juice6 soda pop


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%e"en5step 9obCosting

/ %elect the Cost5Allocation base0s1 touse for allocating ,ndirect Costs tothe 9ob

?/ Match ,ndirect Costs to theirrespecti"e Cost5Allocation base0s1


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%e"en5step 9ob Costing0continued1

@/ Calculate an !"erhead Allocation (ate4

Actual ! Costs Actual ! AllocationBase

/ Allocate !"erhead Costs to the 9ob4 ! Allocation (ate Actual Base Acti"ity #or the 9ob

/ Copute .otal 9ob Costs by adding alldirect and indirect costs together


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#low of Costs

,llustrated

Documents

Cost Concepts.ppt