Bài giảng Managerial Accounting - Chapter 2: Basic Cost Management Concepts

Basic Cost Management ConceptsChapter 2Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.What Do We Mean By a Cost?A costis the measure ofresources givenup to achieve aparticular purpose.2-*Product Costs, Period Costs, and ExpensesProduct costs are costs associated with goods for sale until the time period during which the products are sold, at which time the costs become expenses.Period costs are costs that are expensed during the time period in which they are incurred.Expenses are the consumption of assets for the purpose of generating revenue.2-*Cost Classifications on Financial Statements – Income Statement Product Costs Cost of goods sold Period Costs Operating expenses2-*Types of Production Processes2-*Manufacturing CostsTheProductDirectLaborManufacturing OverheadDirectMaterial2-*Direct MaterialExample:Steel used tomanufacturethe automobile.Cost of raw material that is used tomake, and can be convenientlytraced, to the finished product.2-*Cost of salaries, wages, and fringebenefits for personnel who workdirectly on manufactured products.Direct LaborExample:Wages paid to anautomobile assemblyworker.2-*Manufacturing OverheadAll other manufacturing costsMaterials used to support the production process. Examples: lubricants and cleaning supplies used in an automobile assembly plant.IndirectLaborIndirectMaterialOtherCosts2-*Schedule of Cost of Goods Manufactured2-*Schedule of Cost of Goods Manufactured2-*Schedule of Cost of Goods ManufacturedInclude all direct labor costs incurred during the current period.2-*2-*Schedule of Cost of Goods ManufacturedBeginning work-in-process inventory is carried over from the prior period.Ending work-in-process inventory contains the cost of unfinished goods, and is reported in the current assets section of the balance sheet.2-*Income Statement for a Manufacturer2-*2-*Activities that cause costs to be incurred are called COST DRIVERS:2-*Cost Classifications Cost behavior means how a cost will react to changes in the level of business activity.Total variable costs change when activity changes.Total fixed costs remain unchanged when activity changes.2-*Cost Classifications2-*Direct and Indirect CostsDirect costsCosts that can beeasily and conveniently traced to a product or department.Example: cost of paint in the paint department of an automobile assembly plant.Indirect costsCosts that must be allocated in order to be assigned to a product or department. Example: cost of national advertising for an airline is indirect to a particular flight.2-*Controllable andUncontrollable Costs A cost that can be significantly influencedby a manager is a controllable cost.2-*Opportunity CostThe potential benefit that is given up when one alternative is selected over another.Example: If you werenot attending college,you could be earning$30,000 per year. Your opportunity costof attending college for one year is $30,000.2-*Sunk CostsAll costs incurred in the past that cannot be changed by any decision made now or in the future are sunk costs. Sunk costs should not be considered in decisions. Example: You bought an automobile that cost $22,000 two years ago. The $22,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $22,000 cost.2-*Differential CostsCosts that differ between alternatives. Example: You can earn $1,500 per month in yourhometown or $2,000 per month in a nearby city.Your commuting costs are $50 per month in yourhometown and $300 per month to the city.What is your differential cost? $300 - $50 = $2502-*Marginal Costs and Average CostsThe extra costincurred to produceone additional unit.The total cost toproduce a quantitydivided by thequantity produced.Marginal and average costs arelargely a function of cost behavior -- variable and fixed costs.2-*