Manufacturing Cost Terms MATCH TERM & DEFINITIONS Cost Expense Cost Object Direct Cost Opportunity Cost Indirect Cost The return that could not be realized

Manufacturing Cost Manufacturing Cost TermsTerms

Manufacturing Cost Manufacturing Cost TermsTerms

MATCH TERM & DEFINITIONS

Cost

Expense

Cost Object

Direct Cost

Opportunity Cost

Indirect Cost

The return that could not be realized from the best forgone alternative use of a resource

A cost charged against revenue

Costs not directly related to a cost object

Any item for which a manager wants to measure a cost

Costs directly related to a cost object

A sacrifice of resources

THE DEFERENCE of COST and EXPENSE

Cost (Harga Pokok) Semua biaya yang telah dikeluarkan dan dianggap masih akan memberi manfaat (benefit) di masa yang akan datang dicatat dalam neraca

Expense (Biaya) Semua biaya yang telah dikeluarkan untuk menghasilkan prestasi dan dianggap tidak akan memberikan manfaat (benefit) di masa yang akan datang dicatat dalam perkiraan rugi laba

EXPENDITURES, COSTS & EXPENSES

• Expenditure – company purchases raw materials for $100

• Cost – company reports $100 of raw materials on balance sheet

• Expense – company records $100 expense on income statement when it sells the product that uses the raw material

EXPENSEEXPENSE

ASSETASSETEXPENSEEXPENSE

COSTCOST

Payroll

Check

Quick Check

Which of the following transactions would immediately result in an expense? (There may be more than one correct answer.)A. Work in process is completed.B. Finished goods are sold.C. Raw materials are placed into production.D. Administrative salaries are accrued and paid.

KARAKTERISTIK OPERASI PERUSAHAAN MANUFAKTUR

Gudang Barang

Bagian Penjualan

Bagian Administratif/Umum

Kos barang terjual

Statemen laba-rugi

PenjualanBiaya penjualan

Biaya administratif

Pembelian

Pabrik

Gudangbahan baku

Barang jadi

Laporan kos produksi

Kos barangmanufakturan

MANUFACTURING COSTS

Manufacturing consists of activities to convert raw materials into finished goods.

In contrast, a merchandising firm sells goods in the form in which they were bought.

Categories of manufacturing costs include:

kos

kos

Aliran fisik

Bahan bakuMesin

Tenaga kerja

K a s

Utang Produk

Penyimbolan elemen

koskos

kos

kos

Pengukuran elemenuntuk data dasar

Sistem informasi

Rp1.500.000Rp750.000

Rp2.500.000Rp3.500.000 Rp7.500.000

Rp1.750.000

Konsep kos sebagai bahan olah akuntansi

KLASIFIKASI UMUM BIAYA

BIAYA PRODUKSI: BB (langsung-tidaklangsung)BTK (langsung-tidaklangsung)BOP

BIAYA NON PRODUKSI: Biaya pemasaran atau penjualanBiaya administrasi

KOMPONEN KOS PRODUK

Overhead

Material (bahan baku)

Tenaga kerja langsung

The ProductThe Product

DirectMaterialsDirect

MaterialsDirectLaborDirectLabor

ManufacturingOverhead


DIRECT MATERIALS

Those materials that become an integral part of the product and that can be conveniently traced

directly to it.

Example: A radio installed in an automobileExample: A radio installed in an automobile

DIRECT LABOR

Those labor costs that can be easily traced to individual units of

product.

Example: Wages paid to automobile assembly workersExample: Wages paid to automobile assembly workers

Manufacturing costs that cannot be traced directly to specific units produced.

MANUFACTURING OVERHEAD

Examples: Indirect labor and indirect materialsExamples: Indirect labor and indirect materials

Wages paid to employees who are not directly

involved in production work.

Examples: maintenance workers, janitors and

security guards.

Materials used to support the production process.

Examples: lubricants and cleaning supplies used in the automobile assembly plant.

FactoryFactoryOverheadOverheadFactoryFactory

OverheadOverhead

DirectMaterials

DirectMaterials

DirectDirectLaborLaborDirectDirectLaborLabor

ProductProductCostsCosts

ProductProductCostsCosts

The cost of materials that are an integral part of the product.The cost of labor directly involved in converting material into the product.Manufacturing costs other than direct materials and direct labor.

MATERIALS

RAW MATERIALSBasic materials used in

manufacturing

DIRECT MATERIALS Raw materials that can be

physically and directly associated with the finished product

INDIRECT MATERIALS

Raw materials that cannot be easily associated with the finished product

Not physically part of the finished product or they are an insignificant part of finished product in terms of cost

Considered part of manufacturing overhead

MATERIALS

LABOR

DIRECT LABORWork of factory employees that can

be physically and directly associated with converting raw materials into finished goods

INDIRECT LABOR Work of factory employees that has

no physical association with the finished product or for which it is impractical to trace to the goods produced

MANUFACTURING OVERHEAD

Costs that are indirectly associated with manufacturing the product

Includes all manufacturing costs except direct materials and direct labor

DirectMaterialDirectMaterial

DirectLaborDirectLabor



PrimeCost

ConversionCost

MANUFACTURING COSTS are oftenclassified as follows:

PRIME COSTS

DirectMaterials

DirectLabor

PrimeCosts+ =

What are the prime costs for Bicycles by the Sea?

Direct materials used $200,000+ Direct labor 105,500= $305,000

PRIME COSTS

CONVERSION COSTS

DirectLabor

ManufacturingOverhead+ =

ConversionCosts

IndirectLabor

IndirectMaterials Other

What are the conversion costs forBicycles by the Sea?

Direct labor $105,500+ Indirect manufacturing costs 194,500= $300,000

CONVERSION COSTS

NONMANUFACTURING COSTS

Marketing and selling costs . . .–Costs necessary to get the order and deliver the product.

Administrative costs . . .–All executive, organizational, and clerical costs.

Quick Check

Which of the following costs would be considered manufacturing overhead at Boeing? (More than one answer may be correct.)A. Depreciation on factory forklift trucks.B. Sales commissions.C. The cost of a flight recorder in a Boeing 767.D. The wages of a production shift supervisor.

PRODUCT COSTS Versus PERIOD COSTS

Product costs include direct

materials, direct labor, and

manufacturing overhead.

Period costs are not included in product costs.

They are expensed on the

income statement.

Inventory Cost of Good Sold

BalanceSheet

IncomeStatement

Sale

Expense

IncomeStatement

PRODUCT COSTS

• What are product costs?–They are the costs to produce (or purchase) tangible products intended for sale.

Inventoriableproduct

costs


costs

Fullproduct

costs

Fullproduct

costs

• There are two types of product costs:

PRODUCT COSTS

External Reporting


costs


costs

PeriodcostsPeriodcosts

INVENTORIABLE PRODUCT COSTS

• For external reporting, merchandisers’ inventoriable product costs include only costs that are incurred in the purchase of goods.

• Inventoriable costs are an asset.• Period costs flow as expenses

directly to the income statement.

• For external reporting, manufacturers’ inventoriable product costs include raw materials plus all other costs incurred in the manufacturing process.

• Inventoriable product costs are incurred only in the third element of the value chain.

• Costs incurred in other elements of the value chain are period costs.


DirectMaterials

DirectLabor

IndirectLabor

IndirectMaterials

Other

Manufacturing Overhead


DirectMaterials

DirectLabor

Prime Costs = Direct Materials + Direct Labor


Conversion Costs = Direct Labor + Manufacturing Overhead

DirectLabor

IndirectLabor

IndirectMaterials

Other


The costs of converting the materials into finished

products consists of direct labor and factory overhead. These two costs combined

are often referred to as conversion costs

The costs of converting the materials into finished

products consists of direct labor and factory overhead. These two costs combined

are often referred to as conversion costs

PERIOD COSTS

Matched with revenue of a specific time period and charged to expense as incurred

Non-manufacturing costs

Deducted from revenues in period incurred to determine net income

Includes all selling and administrative expenses

EXAMPLES OF PERIOD COSTSEXAMPLES OF PERIOD COSTSEXAMPLES OF PERIOD COSTSEXAMPLES OF PERIOD COSTS

SELLING EXPENSES

Advertising expenses

Sales salaries expenses

Commission expenses

EXAMPLES OF PERIOD COSTSEXAMPLES OF PERIOD COSTSEXAMPLES OF PERIOD COSTSEXAMPLES OF PERIOD COSTS

ADMINISTATIVE EXPENSES Office salaries

expenses

Office supplies expenses

Depreciation expense— office buildings and office equipment

LO 4 Distinguish between product costs and LO 4 Distinguish between product costs and

period costsperiod costs..

Quick Check

Which of the following costs would be considered a period rather than a product cost in a manufacturing company?A. Manufacturing equipment depreciation.B. Property taxes on corporate headquarters.C. Direct materials costs.D. Electrical costs to light the production facility.

Direct Materials are a:

Product Manufacturing Period Cost Overhead Cost

a. Yes Yes No

b. Yes No No

c. Yes Yes Yes

d. No No No

Review Question

Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead.

______ a. Windshield______ b. Engine______ c. Wages of assembly line worker______ d. Depreciation of factory machinery______ e. Factory machinery lubricants______ f. Tires______ g. Steering wheel______ h. Salary of painting supervisor

DMDMDLMOMODMDMMO

Identify whether each of the following costs should be classified as product costs or period costs.

____________ a. Manufacturing overhead____________ b. Selling expenses____________ c. Administrative expenses____________ d. Advertising expense____________ e. Direct labor____________ f. Direct material

ProductPeriodPeriodPeriod

ProductProduct

COST OBJECTS

• Cost objects are anything for which a separate measurement of costs is desired.

• Cost drivers are any factors that affect cost.

• What are examples of cost objects?– individual products–alternative marketing strategies

–geographic segments of the business

–departments

COST OBJECTS

Flow of Manufacturing Flow of Manufacturing CostsCosts


PRINTING PLANTPRINTING PLANT

Job 73

Work in Process Inventory

•Direct Labor•Factory Overhead

MATERIALS STOREROOMMATERIALS STOREROOM

INK INK

Materials Inventory



CAMPUSCAMPUS BOOKSTOREBOOKSTORE

Cost of Goods Sold

Finished Goods Inventory

WAREHOUSEWAREHOUSE

Job 69

Job 70

Flow of Manufacturing CostsFlow of Manufacturing Costs

DMDM

Materials Work in Process Finished Goods

Wages Payable Factory Overhead

Cost of Goods Sold

DMDMMaterialsPurchased

TotalWages

Direct materials used in productionDMDM

DMDM


Wages Payable Factory Overhead

Cost of Goods Sold

IMIM


TotalWages

Indirect materials used in productionIMIM


IMIM

DMDM


Wages Payable

DLDL

Factory Overhead

Cost of Goods Sold

IMIM


TotalWages

Direct labor used in productionDLDL


IMIM

DLDL

DMDM


Wages Payable

DLDL

Factory Overhead

Cost of Goods Sold

IMIM

ILIL

DMDM

IMIM

DLDL

ILIL

MaterialsPurchased

TotalWages

Indirect labor used in productionILIL


DMDM


Wages Payable

DLDL

Factory Overhead

Cost of Goods Sold

IMIM

ILIL

DMDM

IMIM

DLDL

ILIL

MaterialsPurchased

TotalWages

Other factory overhead costs incurred during production

OFOHOFOH


OFOHOFOH

DMDM


Wages Payable

DLDL

Factory Overhead

Cost of Goods Sold

IMIM

ILIL

DMDM

IMIM

DLDL

ILIL

OFOHOFOH

MaterialsPurchased

TotalWages

Based on predetermined overhead rate

FOHAFOHA

Factory overhead applied to work in processFOHAFOHA


FOHAFOHA

DMDM


Wages Payable

DLDL

Factory Overhead

Cost of Goods Sold

IMIM

ILIL

DMDM

IMIM

DLDL

FOHAFOHA

ILIL

OFOHOFOH

COGMCOGMCOGMCOGMMaterialsPurchased

TotalWages

FOHAFOHA

Cost of goods manufactured and transferred to finished goods

COGMCOGM


DMDM


Wages Payable

DLDL

Factory Overhead

Cost of Goods Sold

IMIM

ILIL

DMDM

IMIM

DLDL

FOHAFOHA

ILIL

OFOHOFOH

SOLDSOLDMaterialsPurchased

TotalWages

FOHAFOHA

Finished goods soldSOLDSOLD

COGMCOGMCOGMCOGM


SOLDSOLD

FLOW of COSTS THROUGH a MANUFACTURER’S ACCOUNTS

• Direct Materials Inventory• Beginning inventory+Purchases and freight-in

=Direct materials availablefor use

– Ending inventory=Direct materials used

• Work in Process Inventory• Beginning inventory+Direct materials used+Direct labor+Manufacturing overhead=Total manufacturing costs

to account for– Ending inventory=Cost of goods

manufactured

• Finished Goods Inventory• Beginning inventory+Cost of goods manufactured=Cost of goods available for sale– Ending inventory=Cost of goods sold

FLOW of COSTS THROUGH a MANUFACTURER’S ACCOUNTS

DIFFERENTIAL COSTS and REVENUES

Costs and revenues that differ among alternatives.

Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month.

Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month.

Differential revenue is: $2,000 – $1,500 = $500

Differential cost is: $300

Quick Check

Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the pizza you ate last night relevant in this decision? In other words, should the cost of the pizza affect the decision of whether you drive or take the train to Portland?A. Yes, the cost of the pizza is relevant.B. No, the cost of the pizza is not relevant.

Quick Check

Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland?A. Yes, the cost of the train ticket is relevant.B. No, the cost of the train ticket is not relevant.

NOTE

• Every decision involves a choice from among at least two alternatives.

• Only those costs and benefits that differ between alternatives (i.e., Differential costs and benefits) are relevant in a decision. All other costs and benefits can and should be ignored.

Quick Check

Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?A. Yes, the licensing cost is relevant.B. No, the licensing cost is not relevant.

Quick Check

Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the depreciation on your car relevant in this decision?A. Yes, the depreciation is relevant.B. No, the depreciation is not relevant.

OPPORTUNITY COSTS

The potential benefit that is given up when one alternative is selected over another.

Example: If you werenot attending college,you could be earning$15,000 per year. Your opportunity costof attending college for one year is $15,000.

SUNK COSTS Sunk costs cannot be changed by any

decision. They are not differential costs and should be ignored when making decisions

Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.

Quick Check

Suppose that your car could be sold now for $5,000. Is this a sunk cost?A. Yes, it is a sunk cost.B. No, it is not a sunk cost.

The EndThe End

Documents

Manufacturing Cost Terms MATCH TERM & DEFINITIONS Cost Expense Cost Object Direct Cost Opportunity Cost Indirect Cost The return that could not be realized