Users:

1
Financial Accounting
Users
Objective
Characteristics
Prepared according to GAAP
Prepared periodically
Business entity
2
Managerial Accounting
Users
Objective and subjective
Characteristics
Prepared according to management needs
Prepared periodically or as needed
Business entity or segment
3
What is a Cost?

• Managers rely on management accountants to
• provide useful cost information to support
  decision
• making
• Cost - a payment of cash (or a commitment to pay
• cash in the future) in order to generate revenue.
  A
• cost provides a benefit

4
Manufacturing Cost Terms (1)

• Direct Material costs costs that 1) are an
  integral part of the product being made and 2)
  are significant
• Indirect Material costs costs that are not a
  significant portion of total product costs (part
  of Factory Overhead)
• Direct Labor costs salaries/wages that 1) are
  directly involved in the manufacturing process
  and 2) are significant
• Indirect labor costs salaries/wages not
  directly involved in the manufacturing process
  (part of Factory Overhead)

5
Manufacturing Cost Terms (2)

• Factory Overhead costs costs other than direct
  materials and direct labor incurred in the
  manufacturing process
• Product costs direct materials direct labor
  factory overhead
• Conversion costs direct labor factory
  overhead

6
Cost Accounting Systems

• Purpose used to accumulate product costs
• Used by managers to
• Establish product prices
• Develop Financial Statements
• Control operations (by supply of data on costs
  incurred by each manufacturing department or
  process)

7
Types of Cost Accounting Systems (1)

• Job Order Cost System a separate record
• is maintained for the cost of each quantity of
• product that is made
• Custom goods
• Special orders
• High dollar items

8
Types of Cost Accounting Systems (2)

• Process Cost System costs are
• accumulated for each department or
• process within a factory products are
• indistinguishable from each other
• Food products
• Oil/chemical products
• Office supplies (pens, paper clips, etc.)

9
Overview of Job Order Costing
Costs Expenses
Product Costs
Balance Sheet
Materials Purchases

Income Statement
Finished Goods Inventory
Period Costs
Selling and Administrative
10
Journal Entries (1)
11
Journal Entries (2)
12
Ledger Accounts (1)
13
Ledger Accounts (2)
14
Allocation of Factory Overhead

• End-of-Month wait until all costs are recorded
  for
• month, then allocate to WIP using some Activity
• Base
• Predetermined Rates calculate rates in
• Advance, per some Activity Base, then
• allocate to WIP as needed
• Estimated total Factory Overhead
  costs
• Rate -------------------------------------------
  --------
• Estimated Activity Base

15
Disposal of FOH Balance When Using Predetermined
Rate

• Balance in FOH is carried forward from
• month to month as Deferred debit or credit
• At year-end, must zero-out FOH transfer
• balance to Cost of Goods Sold
• Overapplied FOH amount allocated is greater
• than actual costs incurred (credit balance)
• Underapplied FOH amount allocated is less than
• actual costs incurred (debit balance)

16
Other

• Activity-Based Costing method of accumulating
  and allocating FOH costs to products using many
  different overhead rates
• Period Costs expenses used in generating
  revenue but not involved in the manufacturing
  process
• Selling Expenses
• Administrative Expenses