28
2 -1 Basic Basic Management Management Accounting Accounting Concepts Concepts CHAPTER CHAPTER

Management Accounting (Hansen Mowen) CH02

  • Upload
    avenger

  • View
    2.908

  • Download
    48

Embed Size (px)

Citation preview

Page 1: Management Accounting (Hansen Mowen) CH02

2 -1

Basic Basic Management Management Accounting Accounting ConceptsConcepts

CHAPTERCHAPTER

Page 2: Management Accounting (Hansen Mowen) CH02

2 -2

1. Describe the cost assignment process.2. Define tangible and intangible products and

explain why there are different product cost definitions.

3. Prepare income statements for manufacturing and service organizations.

4. Outline the differences between functional-based and activity-based management accounting systems.

ObjectivesObjectivesObjectivesObjectives

After studying this After studying this chapter, you should chapter, you should

be able to:be able to:

After studying this After studying this chapter, you should chapter, you should

be able to:be able to:

Page 3: Management Accounting (Hansen Mowen) CH02

2 -3

Exactly what is meant by “cost”?

Exactly what is meant by “cost”?

Cost is the cash or cash-equivalent value sacrificed for goods and services

that is expected to bring a current or future benefit to the organization.

Cost is the cash or cash-equivalent value sacrificed for goods and services

that is expected to bring a current or future benefit to the organization.

I see… It’s a dollar measure of the

resources used to achieve a given

benefit.

I see… It’s a dollar measure of the

resources used to achieve a given

benefit.

Page 4: Management Accounting (Hansen Mowen) CH02

2 -4

A cost objectcost object is any item such as products, customers, departments, projects, activities, and so on, for which costs are measured and assigned.

ExampleExample: A bicycle is a cost object when you are determining the cost to produce a bicycle.

An activityactivity is a basic unit of work performed within an organization.

Example:Example: Setting up equipment, moving materials, maintaining equipment, designing products, etc.

Page 5: Management Accounting (Hansen Mowen) CH02

2 -5

Traceability Traceability is the ability to assign a cost to a cost object in an economically feasible way by means of a cause-and-effect relationship.Direct costsDirect costs are those costs that can be easily and accurately traced to a cost object.

Example:Example: If a hospital is the cost object,the cost of heating andcooling the hospital is a direct cost.

Page 6: Management Accounting (Hansen Mowen) CH02

2 -6

Indirect costsIndirect costs are those costs that cannot be easily and accurately traced to a cost object.

Example:Example: The salary of a plant manager, where departments within the plant are defined as the cost objects.

Page 7: Management Accounting (Hansen Mowen) CH02

2 -7

Tracing Tracing is the actual assignment of costs to a cost object using an observable measure of the resources consumed by the cost object. Tracing costs to cost objects can occur in the following two ways:

Direct tracingDirect tracing is the process of identifying and assigning costs that are exclusively and physically associated with a cost object to that cost object.

Driver tracingDriver tracing is the use of drivers to assign costs to cost objects. DriversDrivers are observable causal factors that measure a cost object’s resource consumption.

Page 8: Management Accounting (Hansen Mowen) CH02

2 -8

Cost Assignment MethodsCost Assignment Methods

Cost of ResourcesCost of Resources

DirectDirectTracingTracing

DriverDriverTracingTracing

AllocationAllocation

PhysicalPhysicalObservationObservation

CausalCausalRelationshipRelationship

AssumedAssumedRelationshipRelationship

Cost ObjectsCost Objects

Page 9: Management Accounting (Hansen Mowen) CH02

2 -9 Interface of Services withManagement Accounting

1. Intangibility

2. Perishability

3. Inseparability

4. Heterogeneity

Services cannot be stored.No patent protection.Cannot display or

communicate services.Price difficult to set.

Services cannot be stored.No patent protection.Cannot display or

communicate services.Price difficult to set.

Derived PropertiesDerived PropertiesDerived PropertiesDerived Properties

Services benefits expire quickly.

Services may be repeated often for one customer.

Services benefits expire quickly.

Services may be repeated often for one customer.

Customer directly involved with production of service.

Centralized mass production of services difficult.

Customer directly involved with production of service.

Centralized mass production of services difficult.

Wide variation in service products possible.

Wide variation in service products possible.

Page 10: Management Accounting (Hansen Mowen) CH02

2 -10 Interface of Services withManagement Accounting

No inventories.Strong ethical code.Price difficult to set.Demand for more accurate

cost assignments.

No inventories.Strong ethical code.Price difficult to set.Demand for more accurate

cost assignments.

Impact on Management Impact on Management AccountingAccounting

Impact on Management Impact on Management AccountingAccounting

No inventories.Need for standards and

consistent high quality.

No inventories.Need for standards and

consistent high quality.

Costs often accounted for by customer type.

Demand for measure-ment and control of quality to maintain consistency.

Costs often accounted for by customer type.

Demand for measure-ment and control of quality to maintain consistency.

Productivity and quality measurement and control must be ongoing.

Total quality manage-ment critical.

Productivity and quality measurement and control must be ongoing.

Total quality manage-ment critical.

1. Intangibility

2. Perishability

3. Inseparability

4. Heterogeneity

Page 11: Management Accounting (Hansen Mowen) CH02

2 -11

Product cost is a cost assignment that supports a well-specified managerial

object. Thus, what product cost means depends on the managerial

objective being served.

Page 12: Management Accounting (Hansen Mowen) CH02

2 -12

DesignDesign

ProduceProduce

MarketMarket

DistributeDistribute

ServiceService DevelopDevelop

Page 13: Management Accounting (Hansen Mowen) CH02

2 -13 Product Costing Definitions

Pricing DecisionsProduct-Mix DecisionsStrategic Profitability

Analysis

Strategic Design DecisionsTactical Profitability

Analysis

External FinancialReporting

Research andResearch andDevelopmentDevelopment

ProductionProduction

MarketingMarketing

Customer Customer ServiceService

Value-Chain Product Costs

ProductionProduction

MarketingMarketing

Customer Customer ServiceService

Operating Product Costs

Traditional Product Costs

ProductionProduction

Man

ager

ial o

bjec

tive

s se

rved

Page 14: Management Accounting (Hansen Mowen) CH02

2 -14

Direct materials are those materials that are directly traceable to the goods or services being produced.

Steel in an automobile

Wood in furniture

Alcohol in cologne

Denim in jeans

Braces for correcting teeth

Page 15: Management Accounting (Hansen Mowen) CH02

2 -15

Direct labor is the labor that is directly traceable to the goods or services being produced.

Workers on an assembly line at Chrysler

A chef in a restaurant

A surgical nurse attending an open heart operation

Airline pilot

Page 16: Management Accounting (Hansen Mowen) CH02

2 -16

Overhead are all other production costs.

Depreciation on building and equipment

Maintenance

Supplies

Supervision

Power

Property taxes

Page 17: Management Accounting (Hansen Mowen) CH02

2 -17

Noninventoriable (period) costs are expensed in the period in

which they are incurred.

Noninventoriable (period) costs are expensed in the period in

which they are incurred.

Salaries and commissions of sales personnel (marketing)

Advertising (marketing) Legal fees (administrative) Printing the annual report

(administrative)

Page 18: Management Accounting (Hansen Mowen) CH02

2 -18

Prime Cost :Direct Materials Costs + Direct Labor

Costs

Conversion Cost:Direct Labor Costs + Overhead Costs

Page 19: Management Accounting (Hansen Mowen) CH02

2 -19

External Financial

Statements

Page 20: Management Accounting (Hansen Mowen) CH02

2 -20 Manufacturing OrganizationManufacturing OrganizationIncome StatementIncome Statement

For the Year Ended December 31, 2004For the Year Ended December 31, 2004

Sales $2,800,000

Less cost of goods sold:

Beginning finished goods inventory $ 500,000

Add: Cost of goods manufactured 1,200,000

Cost of goods available for sale $1,700,000

Less: Ending finished goods inventory 300,000 1,400,000

Gross margin $1,400,000

Less operating expenses:

Selling expenses $ 600,000

Administrative expenses 300,000 900,000

Income before taxes $ 500,000

2-202-20

Page 21: Management Accounting (Hansen Mowen) CH02

2 -21

Direct materials:Beginning inventory $200,000Add: Purchases 450,000Materials available $650,000Less: Ending inventory 50,000Direct materials used $ 600,000

Direct labor 350,000Manufacturing overhead:

Indirect labor $122,500Depreciation 177,500Rent 50,000Utilities 37,500Property taxes 12,500Maintenance 50,000 450,000

Total manufacturing costs added $1,400,000

Statement of Cost of Goods ManufacturedStatement of Cost of Goods ManufacturedFor the Year Ended December 31, 2004For the Year Ended December 31, 2004

2-212-21

continued on next slidecontinued on next slidecontinued on next slidecontinued on next slide

Page 22: Management Accounting (Hansen Mowen) CH02

2 -22

Total manufacturing costs added $1,400,000Add: Beginning work in process 200,000Total manufacturing costs $1,600,000Less: Ending work in process 400,000Cost of goods manufactured $1,200,000

Work in process consists of all partially completed units found in

production at a given point in time.

Page 23: Management Accounting (Hansen Mowen) CH02

2 -23 Service OrganizationService OrganizationIncome StatementIncome Statement

For the Year Ended December 31, 2004For the Year Ended December 31, 2004Sales

$300,000Less expenses:Cost of services sold:

Beginning work in process $ 5,000Service costs added:

Direct materials $ 40,000Direct labor 80,000Overhead 100,000 220,000

Total $225,000Less: Ending work in process 10,000

215,000Gross margin

$ 85,000Less operating expenses: Selling expenses $ 8,000 Administrative expenses 22,000

30,000Income before income taxes

$ 55,000

2-232-23

Page 24: Management Accounting (Hansen Mowen) CH02

2 -24

Functional-Based Management ModelFunctional-Based

Management Model

Efficiency Efficiency AnalysisAnalysis

Performance Performance AnalysisAnalysis

Operational View

ResourcesResources

FunctionsFunctions

ProductsProducts

Cost View

Page 25: Management Accounting (Hansen Mowen) CH02

2 -25

Activity-Based Management Model

Activity-Based Management Model

ResourcesResources

ActivitiesActivities

Products and Products and CustomersCustomers

Cost View

Driver Driver AnalysisAnalysis

Performance Performance AnalysisAnalysis

Process View

Why? What? How Well?

Page 26: Management Accounting (Hansen Mowen) CH02

2 -26

1. Unit-based drivers

2. Allocation-intensive

3. Narrow and rigid product costing

4. Focus on managing cost

5. Sparse activity information

6. Maximization of individual unit performance

7. Use of financial measures of performance

1. Unit- and nonunit-based drivers

2. Tracing intensive

3. Broad, flexible product costing

4. Focus on managing activities

5. Detailed activity information

6. Systematic performance maximization

7. Use of both financial and nonfinancial measures of performance

Functional-Based Activity-BasedFunctional-Based Activity-Based

Page 27: Management Accounting (Hansen Mowen) CH02

2 -27

The EndThe EndThe EndThe End

Chapter TwoChapter Two

Page 28: Management Accounting (Hansen Mowen) CH02

2 -28