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Chapter 3 The General Schedule of costs
Cost classification according to business functions Manufacturing and non manufacturing costs The Income Statement The Schedule of cost of goods manufactured The begining and ending work in process The equivalent units of production
Cost classification according to business functions:
VALUE CHAIN: To identify the major business functions that add value a company’s products or services. These activities are generic. Each activity includes specific activities that vary by industry. Which activities are undertaken? Do they provide customer satisfaction? What is the cost of these activities? MANUFACTURING COMPANIES : Convert raw materials into a product. The company sells the producto either to other companies or to users. Manufacturing includes restaurants and other “service type” companies, as well as automobile or clothes prodution. MERCHANDISING COMPANIES: Buy finished productos and resell the products to customers. Valuing inventories is easier in a merch. Company
MANUFACTURING COSTS
- Operations Direct Materials Those raw materials that become an integral part of the product and that can be conveniently traced to it. It does not imply unprocessed natural resources. The finished product of one company can be the raw material of another. Example: A radio installed in an automobile Direct Labour Those labour costs that can be easily traced to individual units of product. In some industries, sophisticated equipment is replacing direct labor. Manufacturing Overhead: Manufacturing costs that cannot be traced directly to specific units produced. Also called indirect manufacturing cost, factory overhead Example: Wages paid to automobile assembly workers
C. The cost of a flight recorder in a Boeing 767. D. The wages of a production shift supervisor. Concept of Cost: What does cost mean? It has multiple meanings and different types of costs are used in different situations.
- Cost classifications for preparing external financial statements.
- Cost classifications to describe cost behaviour
- Cost classifications for assigning costs.
- Cost classificaitons for decision making.
Product Costs versus Period 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.
Balance Sheet = Statement of financial position
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. Schedule of Cost of Goods Manufactured
Cost of Goods Manufactured and the beginning and ending WIP
Quick Check ✓ Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? A. $1,160, B. $ 910, C. $ 760, D. Cannot be determined.
Quick Check ✓ Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month? A. $ 20,000. B. $740,000. C. $780,000. D. $760,000.
Manufacturing Cost Flows
Equivalent Units of Production
Equivalent Units of Production: Equivalent units are the product of the number of partially completed units and the percentage of completion of those units. We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory.
Quick Check ✓ For the current period, Matrix started 15,000 units and completed 10,000 units, leaving 5, units in process 30 percent complete. How many equivalent units of production did Matrix have for the period? a. 10, b. 11, c. 13, d. 15,
Equivalent Units of Production
Quick Check ✓ Now assume that Matrix incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Matrix’s cost per equivalent unit for the period? a. $1. b. $2. c. $2. d. $2.
