Professional Documents
Culture Documents
15th edition
Edward J. VanDerbeck
© 2011 Cengage Learning. All Rights Reserved. May
not be copied, scanned, or duplicated, in whole or in
part, except for use as permitted in a license
distributed with a certain product or service or
otherwise on a password-protected website for
classroom use.
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Chapter 1
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Learning Objectives
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Cost Accounting
Cost accounting provides the detailed cost data
that management needs to control current
operations and plan for the future.
Management uses cost accounting information
to decide how to allocate resources to the most
efficient and profitable areas of the business.
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Types of Businesses Entities
That Use Cost Accounting
Manufacturers (Ford, General Motors)
Merchandisers/Retailers (WalMart, Kmart)
Wholesalers (Beverage Distributors)
For-profit Service Businesses (CPAs,
Attorneys)
Not-for-profit Service Agencies (United
Way, Red Cross)
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The Manufacturing Process
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ISO 9000 Certification
The International Organization for
Standardization created a set of five
international standards for quality
management, ISO 9000-9004.
These standards require that manufacturers
have a well-defined quality control system
and they consistently maintain a high level
of quality.
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Determining Product
Costs and Pricing
Cost accounting is used to determine
products costs and help with marketing
decisions.
1. Determining the selling price of a product.
2. Meeting competition.
3. Bidding on contracts.
4. Analyzing profitability.
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Planning and Control
Planning is the process of establishing
objectives or goals for the firm and
determining the means by which they will be
met. Effective planning is facilitated by the
following:
1. Clearly defined objectives of the
manufacturing operation.
2. A production plan that will assist and guide
the company in reaching its objectives.
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Planning and Control (cont.)
Control is the process of monitoring the
company’s operations and determining
whether the objectives identified in the
planning process are being accomplished.
Effective control is achieved through the
following:
1. Assigning responsibility.
2. Periodically measuring and comparing results.
3. Taking necessary corrective action.
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Responsibility Accounting
Responsibility accounting is the assignment
of accountability for costs or production results
to those individuals who have the most authority
to influence them.
A cost center is a unit of activity within the
factory to which costs may be practically and
equitably assigned. The manager of a cost
center is responsible for those costs that the
manager controls.
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Reporting
Cost and production reports for a cost
center reflect its costs, in dollars, and its
production activity.
The performance report will include only
those costs and production data that the
center’s manager can control.
A variance is the favorable (F) or
unfavorable (U) difference between actual
costs and budgeted costs.
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Performance Report Example
Leonardo’s Italian Cafe
Performance Report - Kitchen
September 30, 2011
Budgeted Actual Variance
Expense September Year-to-Date September Year-to-Date September Year-to-Date
F = Favorable
U = Unfavorable
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Management Accounting
The Institute of Management Accountants
(IMA) is the largest organization of
accountants in industry. The Certified
Management Accountant (CMA) is
comparable to the Certified Public
Accountant (CPA) for public accountants.
For more information, please visit the IMA’s
website at www.imanet.org
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Corporate Governance
Corporate governance is the means by
which a company is directed and controlled.
The Sarbanes-Oxley Act (SOX) of 2002 was
written to reduce abuse and improve
corporate governance.
The Public Company Accounting Oversight
Board (PCAOB) was established to provide
oversight of the accounting profession.
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Relationship of Cost Accounting to
Financial and Managerial Accounting
Cost Accounting System
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Relationship of Cost Accounting to
Financial and Managerial Accounting
(cont.)
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Cost Accounting vs. Financial and
Managerial Accounting (cont.)
Financial
Cost Management
Accounting
Accounting Accounting
Cost of Goods Sold
Merchandiser Manufacturer
Beginning Beginning
merchandise inventory finished goods inventory
Plus: Plus:
Purchases (merchandise) cost of goods manufactured
Merchandise Finished goods
available for sale available for sale
Less: Less:
ending merchandise inventory ending finished goods inventory
Cost of good sold Cost of good sold
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Inventories
Merchandiser Manufacturer
Current assets: Current assets:
Cash Cash
Accounts receivable Accounts receivable
Inventories: Inventories:
Merchandise Finished goods
inventory Work in process
Materials
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Inventories (cont.)
Most manufacturers maintain a perpetual
inventory system that provides a continuous
record of purchases, issues, and balances of all
goods in stock.
A periodic inventory system does not provide
a continuous record.
An inventory ledger is a subsidiary ledger
maintained to provide support for the control
accounts.
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Elements of Manufacturing
Costs
Direct materials
Materials that become part of the finished good and
can be readily identified.
Direct labor
Labor of employees who work directly on the product
manufactured.
Factory overhead
Includes all costs related to production other than
direct materials and direct labor.
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Prime Cost and Conversion Cost
Direct Materials
Elements Prime Cost
of Cost
Direct Labor
Conversion
Factory Overhead Cost
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Flow of Manufacturing Costs
Direct Materials
Work in Process Finished Goods Cost of Goods Sold
Direct Labor
(Assets) (Assets) (Expenses)
Factory Overhead
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Illustration of Accounting for
Manufacturing Costs
Materials xx Work in Process
Accounts Payable xx (Direct Labor) xx
Factory Overhead
Work in Process (Indirect Labor) xx
(Direct Materials) xx Selling & Admin Exp
Factory Overhead (Salaries) xx
(Indirect Materials) xx Payroll xx
Materials xx
Factory Overhead
Payroll xx (Depr. Bldg) xx
Wages Payable xx Selling & Admin Exp
(Depr. Bldg) xx
Wages Payable xx Accum. Depr. – Bldg xx
Cash xx
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Illustration of Accounting for
Manufacturing Costs (cont.)
Factory Overhead Finished Goods xx
(Depr. Mach & Eq) xx Work in Process xx
Accum. Depr. –
Mach & Eq xx Accounts Payable xx
Cash xx
Factory Overhead
(Utilities) xx Accounts Receivable xx
Selling & Admin Exp Sales xx
(Utilities) xx Cost of Goods Sold xx
Accounts Payable xx Finished Goods xx
Work in Process xx
Factory Overhead xx
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Cost Accounting Systems
Job Order Cost System
Output consists of special or custom-made
products.
Provides a separate record for the cost of
each quantity of these special or custom-
made products.
Process Cost System
Accumulates costs for each department or
process in the factory.
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Job Order Cost System
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Process Cost System
Work in Process
Work in Process
Dept. 2 Finished Goods
Dept. 1
Factory Factory
Overhead Overhead
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Standard Cost System
May be used with either a job order or a
process cost system.
Uses predetermined standard costs to furnish a
measurement that helps management make
decisions regarding the efficiency of operation.
Standard costs are costs that would be incurred
under efficient operating conditions and are
forecast before the manufacturing process begins.
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Appendix
IMA Statement of Ethical Professional Practice
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Appendix (cont.)
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Address
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ds/downloads/0840037031_247277.ppt
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