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1、CHAPTER 2,An Introduction to Cost Terms and Purposes,1,CHAPTER 2An Introduction to 1,Basic Cost Terminology,Cost sacrificed resource to achieve a specific objectiveActual Cost a cost that has occurredBudgeted Cost a predicted costCost Object anything of interest for which a cost is desired,2,Basic C
2、ost TerminologyCost s,Basic Cost Terminology,Cost Accumulation a collection of cost data in an organized mannerCost Assignment a general term that includes gathering accumulated costs to a cost object. This includes:Tracing accumulated costs with a direct relationship to the cost object and Allocati
3、ng accumulated costs with an indirect relationship to a cost object,3,Basic Cost TerminologyCost Acc,Direct and Indirect Costs,Direct Costs （直接计入成本） CAN be conveniently and economically traced (tracked) to a cost objectIndirect Costs （间接计入成本） CANNOT be conveniently or economically traced (tracked) t
4、o a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner,4,Direct and Indirect CostsDirec,Cost Examples,Direct Costs PartsAssembly line wagesIndirect CostsElectricityRentProperty taxesDirect SpecificIndirect - Common,5,Cost ExamplesDire
5、ct Costs 5,Direct and Indirect Costs,Several factors affect the classification of a cost as direct or indirect:The materiality of the cost in questionAvailable information-gathering technologyDesign of operationsContractual arrangementsThe direct/indirect classification depends on the choice of the
6、cost object.,6,Direct and Indirect CostsSever,Direct and Indirect Costs,The direct/indirect classification depends on the choice of the cost object.Example: Lee Xin Nutritious Food Ltd.Packaged Chicken Spicy Chicken & Lemon ChickenPackaged Duck Baked Duck & Pickled DuckEtcBoth chicken and duck are r
7、aw materials for the two products.,7,Direct and Indirect CostsThe d,Direct and Indirect Costs,The direct/indirect classification depends on the choice of the cost object.If spicy chicken and pickled duck are the cost objects, chicken and duck are _ cost. However, If packaged chicken and packaged duc
8、k are the cost objects, chicken and duck are _ cost. Read the example about the Assembly Department Supervisors salary on Page 21.,8,Direct and Indirect CostsThe d,Cost Behavior (成本性态),Variable Costs （变动成本） changes in total in proportion to changes in the related level of activity or volumeFixed Cos
9、ts （固定成本） remain unchanged in total regardless of changes in the related level of activity or volumeCosts are fixed or variable only with respect to a specific activity or a given time period,9,Cost Behavior (成本性态)Variable C,Cost Behavior,Variable costs are constant on a per-unit basis.If a product
10、takes 5 pounds of materials each, it stays the same per unit regardless of whether one, ten, or a thousand units are producedFixed costs change inversely with the level of production. As more units are produced, the same fixed cost is spread over more and more units, reducing the cost per unit,10,Co
11、st BehaviorVariable costs ,Cost Behavior,* Formulate the total and unit variable cost, and total and unit fixed cost respectively based on the Cost Theory that you have learned in Microeconomics.,11,Cost Behavior* Formulate the t,Cost Behavior Summarized,Total Dollars,Cost per Unit,Variable Costs,Ch
12、ange in proportion with outputMore output means More cost,Unchanged in relation to output,Fixed Costs,Unchanged in relation to output,Change inversely with outputMore output means lower cost per unit,12,Cost Behavior SummarizedTotal,Total Costs and Unit Costs,A unit cost (also called an average cost
13、) is computed by dividing some amount of cost total by some number of units.The units may be expressed in various ways:Hours workedPackages deliveredBicycles assembled,13,Total Costs and Unit CostsA un,Total Costs and Unit Costs,What is the unit cost (leasing and handlebars) when Metairie Bicycles a
14、ssembles 1,000 bicycles?Total fixed cost $94,500 + Total variable cost $52,000 = $146,500$146,500 /1,000 = $146.50,14,Total Costs and Unit CostsWhat,Total Costs and Unit Costs,Total costs ($000) $146.5 $ 94.5 0 1,000 Volume,15,Total Costs and Unit CostsTota,Use Unit Costs Cautiously,Assume that Meta
15、irie Bicycles management uses a unit cost of $146.50 (leasing and handlebars).Management is budgeting costs for different levels of production.,16,Use Unit Costs CautiouslyAssum,Use Unit Costs Cautiously,What is their budgeted cost for an estimated production of 600 bicycles?600 * $146.50 = $87,900W
16、hat is their budgeted cost for an estimated production of 3,500 bicycles?3,500 * $146.50 = $512,750,17,Use Unit Costs CautiouslyWhat,Use Unit Costs Cautiously,What should the budgeted cost be for an estimated production of 600 bicycles?Total fixed cost$ 94,500 Total variable cost ($52 *600) = 31,200
17、 Total$125,700$125,700 /600 = $209.50Using a cost of $146.50 per unit would underestimate actual total costs if output is below 1,000 units.,18,Use Unit Costs CautiouslyWhat,Use Unit Costs Cautiously,What should the budgeted cost be for an estimated production of 3,500 bicycles?Total fixed cost $ 94
18、,500 Total variable cost (52 *3,500) = 182,000 Total$276,500$276,500 / 3,500 = $79.00,19,Use Unit Costs CautiouslyWhat,Use Unit Costs Cautiously,Using a cost of $146.50 per unit instead of $79.00 would overestimate actual total costs if output is above 1,000 units.For decision making, managers shoul
19、d think in terms of total costs rather than unit costs.,20,Use Unit Costs CautiouslyUsing,A Cost Caveat,Unit costs should be used cautiously. Since unit costs change with a different level of output or volume, it may be more prudent to base decisions on a total dollar basis.What is your view on this
20、 problem?,21,A Cost CaveatUnit costs should,Relationships of Types of Costs,Direct,Indirect,Variable,Fixed,22,Relationships of Types of Cost,Other Cost Concepts,Cost Driver a variable that causally affects costs over a given time span (Explained in CH5)Relevant Range the band of normal activity leve
21、l (or volume) in which there is a specific relationship between the level of activity (or volume) and a given cost (Explained in CH 10)For example, fixed costs are fixed only within the relevant range.,23,Other Cost ConceptsCost Driver,Different Types of Firms,Manufacturing-sector companies create a
22、nd sell their own productsMerchandising-sector companies product resellersService-sector companies,24,Different Types of FirmsManufa,Types of Inventories,Direct Materials resources instock and available for useWork-in-Process (or progress) products started but not yet completed. Often abbreviated as
23、 WIPFinished Goods products completed and ready for sale,25,Types of InventoriesDirect Mat,Types of Product Costs,Direct MaterialsDirect LaborIndirect Manufacturing factory costs that are not traceable to the product. Also known as Manufacturing Overhead costs or Factory Overhead costs,26,Types of P
24、roduct CostsDirect M,Distinctions Between Costs,Inventoriable Costs product manufacturing costs. These costs are capitalized as assets (inventory) until they are sold and transferred to Cost of Goods SoldPeriod Costs have no future value and are expensed as incurred,27,Distinctions Between CostsInve
25、,Cost Flows,The Cost of Goods Manufactured and the Cost of Goods Sold section of the income statement are accounting representations of the actual flow of costs through a production system.Note the importance of inventory accounts in the following accounting reports, and in the cost flow chart,28,Co
26、st FlowsThe Cost of Goods Ma,Categories of Inventory,General formula: Beginning inventory Input ( purchase, manufacture, etc) - Ending inventory Cost of transferred (sold, consumed, etc)OR Cost of inventory items available for transfer- Ending inventory Cost of transferred (sold, consumed, etc),29,C
27、ategories of InventoryGeneral,Categories of Inventory,Concrete steps:1. Direct materials inventory :Beginning direct materials inventory Purchases of direct materials Ending direct materials inventory Direct materials usedOR:Cost of direct materials available for useEnding direct materials inventory
28、 Direct materials used,30,Categories of InventoryConcret,Categories of Inventory,2. Work-in-process inventory :Beginning work-in-process inventory Total Manufacturing costs (DM used +DL+MO)- Ending work-in-process inventory Cost of goods manufacturedOR:Total manufacturing cost account forEnding work
29、 in process Cost of goods manufactured,31,Categories of Inventory2. Work,Categories of Inventory,3. Finished goods inventory : Beginning finished goods inventory Cost of goods manufactured Ending finished goods inventory Cost of goods soldOR:Cost of goods available for saleEnding finished goods inve
30、ntory Cost of goods sold,32,Categories of Inventory3. Fini,Problem for Self-Study,1. Demonstration of Computing InventoriesDM Inventory: $40k + $460k $50k = $500k - $50k = $450kW-I-P Inventory : $10k + ($450k+$300k+$214k) $14k = $974k - $14k = $960kF.G. $100k + $960k $150k = $1060k 150k = $910k,33,P
31、roblem for Self-Study1. Demon,Problem for Self-Study,2. Demonstration of Computing unit costsUnit of DM cost: $450k / 900k = $0.5Unit plant-leasing cost : $54k / 900k = $0.063. Demonstration of total costs:Budgeted total DM cost: $0.51000k = $500kBudgeted total plant-leasing cost :P47 $54000,34,Prob
32、lem for Self-Study2. Demon,Cost Flowchart,35,Cost Flowchart35,Other Cost Considerations,Prime cost is a term referring to all direct manufacturing costs (labor and materials)Conversion cost is a term referring to direct labor and factory overhead costs, collectivelyPrime & conversion cost will be di
33、scussed in Chapter 17 & 18 (process costing system).Overtime labor costs are considered part of overhead,36,Other Cost ConsiderationsPrime,Different Definitions of Cost for Different Applications,Pricing and product-mix decisions may use a “super” cost approach (comprehensive)Contracting with govern
34、ment agencies very specific definitions of cost for “cost plus profit” contractsPreparing external-use financial statements GAAP-driven product costs only,37,Different Definitions of Cost,Three Common Features of Cost Accounting and Cost Management,Calculating the cost of products, services, and other cost objectsObtaining information for planning and control, and performance evaluationAnalyzing the relevant information for making decisions,38,Three Common Features of Cost,
