Bài giảng Fundamentals of cost accounting - Chapter 6: Fundamentals of Product and Service Costing

© 2014 by McGraw-Hill Education.  This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.  This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.  Fundamentals of Productand Service CostingChapter 6Learning ObjectivesLO 6-1 Explain the fundamental themes underlying the design of cost systems.LO 6-2 Explain how cost allocation is used in a cost management system.LO 6-3 Explain how a basic product costing system works.LO 6-4 Understand how overhead cost is allocated to products.LO 6-5 Explain the operation of a two-stage allocation system for product costing.LO 6-6 Describe the three basic types of product costing systems: job order, process, and operations.Cost Management SystemKeys to a good cost management system: Oriented to the needs of the decision makers Designed so that benefits exceed costsCost Management SystemsLO 6-1 Explain the fundamental themes underlying the design of cost systems. The objective of the cost management system is to provide information about costs relevant for decision making. The cost management system accumulates and reports costs about processes, products, and services.LO 6-1Reasons to Calculate Productor Service Costs For decision making For deciding what to sell For setting prices For knowing the cost of goods sold For knowing the cost of inventoryLO 6-1Cost Allocation and Product CostingLO 6-2 Explain how cost allocation is used in a cost management system.Basic Cost Flow DiagramDirectmaterialsDirectlaborManufacturingoverheadAlphaBetaCostpoolsCostobjectsCostallocationruleIndirect (allocated by direct labor cost)DirectLO 6-2Fundamental Themes Underlyingthe Design of Cost Systems for Managerial PurposesCost systems should have a decision focus.Different cost information is used fordifferent purposes.Cost information for managerial purposesmust meet the cost-benefit test.LO 6-2Basic Cost Flow ModelLO 6-3 Explain how a basic product costing system works.How costs and units move through inventories:This is true for the following accounts: – Raw Materials (RM) – Work-in-Process (WIP) – Finished Goods (FG)LO 6-3Costing with No Work-in-Process Inventories Baxter Paint begins production on April 1. It starts and completes production of 100,000 gallons of paint in April and has no ending work-in-process inventory.Materials $ 400,000Labor 100,000Manufacturing overhead 500,000 Total $1,000,000Cost of resources used in April:LO 6-3 Finished GoodsLO 6-3Costing with No Work-in-Process InventoriesWhat are the costs at the end of the period?$1,000,000 was added to work-in-process and then transferred out to finished goods.Since Baxter produced 100,000 gallons of paint, then the cost per gallon of paint is $10.LO 6-3Costing with No Work-in-Process InventoriesBeginning inventory -0-Started in May 110,000 Total 110,000Ending WIP (50% complete) 20,000Transferred out 90,000Production for Baxter Paint for May follows (gallons):LO 6-3Costing with Ending Work-in-Process InventoriesFinished goodsLO 6-3Costing with Ending Work-in-Process InventoriesHow do we cost Baxter’s 20,000 gallons of paint thatare only half finished?20,000 gallons half finished is equivalent to 10,000gallons finished.90,000 gallons transferred out plus 10,000 equivalent gallonsof finished paint equals 100,000 equivalent gallons of paint.Gallons of paint transferred out 90,000Equivalent gallons of finished paint 10,000Total equivalent gallons of paint 100,000LO 6-3Costing with Ending Work-in-Process InventoriesMaterials $390,000Labor 100,000Manufacturing overhead 500,000 Total $990,000Costs incurred in May Year 2:$990,000/100,000 gallons = $9.90 per gallonCosts transferred to finished goods:90,000 gallons × $9.90/gallon = $891,000LO 6-3Costing with Ending Work-in-Process InventoriesLO 6-3Costing with Ending Work-in-Process InventoriesCosting in a Multiple Product,Discrete Process IndustryLO 6-3Grange BoatsCost Flow Diagram: Cost Allocation BasesDirectmaterialsDirectlaborManufacturingoverheadC-27s27-foot sailboatC-20s20-foot sailboatCostpoolsCostobjectsIndirectcost (allocated inproportion todirect labor-hours)DirectcostDirectcostProduct Costs for January Year 2—Grange BoatsUnits producedDirect labor-hoursCosts: Direct materials Direct labor Manufacturing overheadTotal 10 2,000$40,000 72,000 30 3,000$36,000 78,000 40 5,000$ 76,000 150,000 180,000$406,000C-27sC-20sTotalLO 6-3Costing in a Multiple Product,Discrete Process IndustryDirectmaterialsDirectlaborC-27sC-20sCostpoolsCostobjectsDirect costDirect cost$76,000$150,000$40,000$36,000$72,000$78,000LO 6-3Costing in a Multiple Product,Discrete Process IndustryPredetermined Overhead RatesLO 6-4 Understand how overhead cost is allocated to products.Indirect costs are allocated using a predeterminedoverhead rate (POHR).POHR is the cost per unit of the allocation base usedto charge overhead to products.POHR = $ ÷ BaseLO 6-4Predetermined Overhead RatesPOHR=Estimated overhead $Estimated allocation baseWhat are the estimated costs?What activity drives the overhead costs?Why use estimates? Products need to have costs applied during the period. The exact amount of indirect costs are not known until the end of the period.LO 6-4Predetermined Overhead RatesDirect labor hoursEstimated overhead costs 2,000 3,000 5,000$180,000C-27sC-20sTotalPOHR = $180,000 ÷ 5,000 = $36/DLHLO 6-4Product Costing of Multiple ProductsCostpoolCostobjectsCostallocationruleManufacturingoverhead$180,000C-27s$72,000(2,000 DLH × $36)C-20s$108,000(3,000 DLH × $36)Direct labor hours ($36/DLH)LO 6-4Product Costs for January—Grange Boats(allocation base is direct labor hours)Units producedDirect labor-hoursCosts: Direct materials Direct labor Manufacturing overhead (@ $36/hour)TotalCost per unit 10 2,000$ 40,000 72,000 72,000$184,000$ 18,400 30 3,000$ 36,000 78,000 108,000$222,000$ 7,400 40 5,000$ 76,000 150,000 180,000$406,000C-27sC-20sTotalLO 6-4Product Costing of Multiple ProductsChoice of the Allocation BaseThe choice of the allocation base is somewhat arbitrary.What will be the result if management choosesdirect labor cost as the allocation base?The rate then becomes 120% ($180,000 ÷ $150,000)LO 6-4Choice of the Allocation BaseProduct Costs for January—Grange Boats(allocation base is direct labor dollars)Units producedDirect labor-hoursCosts: Direct materials Direct labor Manufacturing overhead (@ 120%)TotalCost per unit 10 2,000$ 40,000 72,000 86,400$198,400$ 19,840 30 3,000$ 36,000 78,000 93,600$207,600$ 6,920 40 5,000$ 76,000 150,000 180,000$406,000C-27sC-20sTotalLO 6-4Multiple Allocation Basesand Two-Stage SystemsLO 6-5 Explain the operation of a two-stage allocation system for product costing.We can use two or more allocation bases to allocatemanufacturing overhead to products.LO 6-5Manufacturing overheadMachine-relatedcostsDirect labor-relatedcostsC-27sC-20sCostpoolCostobjectsCostallocationrulesIndirect costsIndirect costs(allocated in proportionto machine hours)(allocated in proportionto direct labor costs)SecondstageFirst stageLO 6-5Multiple Allocation Basesand Two-Stage SystemsCostpoolCost allocationruleIntermediatecost poolsOverhead$180,000Labor-related$108,000Machine-related$72,000Direct laborcostsMachinehoursLO 6-5Multiple Allocation Basesand Two-Stage SystemsLO 6-5$72,000 ÷ 4,000 machine hours = $18$108,000 ÷ $150,000 labor costs = 72%Multiple Allocation Basesand Two-Stage SystemsTwo-Stage Cost Allocation—Grange BoatsIntermediatecost poolsCostAllocationCostObjectsAllocatedoverheadLabor-related$180,000Machine-related$72,000$150,000Direct labor cost72% DLC4,000Machine hours$18/MHC-27s$51,840 DL cost$18,000 MHC-20s$ 56,160 DL cost$ 54,000 MH$69,840 Total$110,160 TotalLO 6-5Costs: Direct materials Direct laborOverhead: Machine-related @$18/machine-hour Labor-related @72% direct labor costTotal costUnit cost $ 40,000 72,000 18,000 51,840$ 69,840$181,840$ 18,184 $ 36,000 78,000 54,000 56,160$110,160$224,160$ 7,472$ 76,000 150,000 72,000 108,000$180,000$406,000C-27sC-20sTotalLO 6-5Two-Stage Cost Allocation—Grange BoatsProduct Costing SystemsLO 6-6 Describe the three basic types of product costing systems: job order, process, and operations.Job costing: – An accounting system that traces costs to individual units or to specific jobs, contracts, or batches of goods. (custom homes, movies, services)Process costing: – An accounting system used when identical units are produced through a series of uniform production steps. (cornflakes, facial tissues, paint)LO 6-6Product Costing SystemsOperation costing: – A hybrid costing system often used in manufacturing of goods that have some common characteristics plus some individual characteristics. (automobiles, computers, clothing)LO 6-6End of Chapter 6