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    ACCT 306 Powerpoint

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    Kayla Shelton
    This document discusses cost accounting concepts and cost flows in manufacturing companies. It defines key terms like direct materials, direct labor, factory overhead, work-in-process inventory, and finished goods inventory. It also provides examples of how costs flow through these inventory accounts over an accounting period to eventually determine cost of goods sold and net income. Costs start in raw materials, get added to work-in-process as production occurs, and eventually become finished goods ready for sale.

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    ACCT 306 Powerpoint

    Uploaded by

    Kayla Shelton
    38 views30 pages
    This document discusses cost accounting concepts and cost flows in manufacturing companies. It defines key terms like direct materials, direct labor, factory overhead, work-in-process inventory, and finished goods inventory. It also provides examples of how costs flow through these inventory accounts over an accounting period to eventually determine cost of goods sold and net income. Costs start in raw materials, get added to work-in-process as production occurs, and eventually become finished goods ready for sale.

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    Cost Accounting Powerpoint

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    This document discusses cost accounting concepts and cost flows in manufacturing companies. It defines key terms like direct materials, direct labor, factory overhead, work-in-process inventory, and finished goods inventory. It also provides examples of how costs flow through these inventory accounts over an accounting period to eventually determine cost of goods sold and net income. Costs start in raw materials, get added to work-in-process as production occurs, and eventually become finished goods ready for sale.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    38 views30 pages

    ACCT 306 Powerpoint

    Uploaded by

    Kayla Shelton
    This document discusses cost accounting concepts and cost flows in manufacturing companies. It defines key terms like direct materials, direct labor, factory overhead, work-in-process inventory, and finished goods inventory. It also provides examples of how costs flow through these inventory accounts over an accounting period to eventually determine cost of goods sold and net income. Costs start in raw materials, get added to work-in-process as production occurs, and eventually become finished goods ready for sale.

    Copyright:

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    Download as pptx, pdf, or txt
    of 30

    Introduction & Cost Flows

    Updated 8/20/2013

    Cost ?

    Monetary measure of resources given up to attain an objective (such as acquiring a good or delivering a service)

    The Conversion Process


    Input
    Purchase raw materials or supplies

    Output
    Product or Service

    CONVERSION

    Degrees of Conversion
    Low

    Moderate Moderate

    High

    Low

    High

    Department stores Gas stations ??? ??? Florists Meat markets Oil-change businesses

    Moderate

    Manufacturing Construction Agriculture Architecture Auditing Mining Printing

    ???

    Service Company
    Input
    Purchase supplies

    Significant amount of labor Tangible or intangible output

    Use supplies, labor, overhead to provide service

    Output
    Sell to customer

    Retail Company
    Input
    Purchase products for resale

    Output
    Warehouse and/or display

    Purchase finished goods Resell to customers

    Sell to customer

    Manufacturer
    Significant amount of labor & machinery Tangible output

    Input
    Purchase raw materials and supplies Production Center
    add labor and overhead

    Output
    Finished product

    Sell to customer

    Basics of Cost Flows - Part 1

    Beginning Balance Inputs Outputs

    Ending Balance

    Inventory

    $10,000

    $457,500

    $458,800

    $8,700

    In other words...
    We started the accounting period with $10,000 worth of stuff and purchased another $457,500 worth. This means that during the period we had $467,500 worth of this inventory to use, abuse, lose, or sell. At the end of the period, however, a physical inventory was taken & we discovered that $8,700 worth was still on hand. Therefore, we know the difference between $467,500 & $8,700 (which is $458,800) is now no longer in inventory. Presumably the inventory was used for its intended purpose.

    LSW Sales Corporation (Retail) Income Statement for the period ending December 31, 20XX

    Revenues.. $1,500,000 Less:Cost of Goods Sold: Beg.Mdse.Inventory..$ 50,000 Net Purchases of Inventory. 875,000 Cost of Goods Available for Sale 925,000 Less:End.Mdse.Inventory. (40,000) Cost of Goods Sold(885,000) Gross Margin. 615,000 Operating Expenses: Selling Expenses..150,000 Administrative Expenses...350,000 Total Operating Expenses (500,000) Net Income. $115,000

    LSW Manufacturing Corporation Income Statement for the period ending December 31, 20XX

    Revenues.. $1,500,000 Less:Cost of Goods Sold Beg.F. Goods Inventory.....$ 50,000 Cost of Goods Mfg.... 875,000 Cost of Goods Available for Sale 925,000 Less:End.F. Goods Inventory... (40,000) Cost of Goods Sold(885,000) Gross Margin. 615,000 Operating Expenses: Selling Expenses..150,000 Administrative Expenses...350,000 Total Operating Expenses (500,000) Net Income. $115,000

    Cost Accumulation in a Manufacturing Company


    Materials Inventory Work in Process Inventory Finished Goods Inventory Balance Sheet Cost of Goods Sold Income Statement

    Inventory Accounts for a Manufacturing Firm


    1. 2. Direct Materials Inventory - sometimes called Raw Materials Inventory. Work-in-Process Inventory - where costs are accumulated as products are being made.

    3.

    Finished Goods Inventory - where costs of products that are ready for sale are kept. This is exactly the same thing as the Merchandise Inventory account for a merchandising firm (retail).

    Cost Flows - Part 2 Now lets see what happened during the period; it is what happened during the period that we are really concerned about.
    Direct Materials Inv. Work-in-Process Inv. Finished Goods Inv.

    $ 5,000 $97,200 $6,500

    $8,000

    $10,000

    $12,000

    $11,000

    $97,200 worth of direct materials were purchased. This means that $102,200 of materials could have been used in the manufacturing process.

    Cost Flows - Part 2 Of this $102,200 of materials, some was requisitioned by production during the period; what wasnt used during the period remained in ending inventory.
    Direct Materials Inv. Work-in-Process Inv. Finished Goods Inv.

    $ 5,000 $97,200 $6,500 $95,700

    $8,000

    $10,000

    $12,000

    $11,000

    Since $102,200 could have been used, & $6,500 wasnt used, then the difference, $95,700, must be the value of materials taken out of DM Inv. & used in the production process.

    Cost Flows - Part 2 This $95,700 of materials was requisitioned by production during the period; as the material is transferred to production, the costs are also transferred to Work-in-Process Inventory.
    Direct Materials Inv. Work-in-Process Inv. Finished Goods Inv.

    $ 5,000

    $97,200
    $6,500

    $8,000 $95,700 DM $95,700 $12,000

    $10,000

    $11,000

    Everybody intuitively understands that direct (or raw) materials (DM) are a cost related to the production of a product.

    Cost Flows - Part 2


    Direct material & direct labor are referred to as direct costs because we can usually directly attribute these costs to the product we are making
    Direct Materials Inv. Work-in-Process Inv. Finished Goods Inv.

    $ 5,000 $97,200 $6,500

    $8,000 DM $ 95,700 $95,700 DL $165,400 $12,000

    $10,000

    $11,000

    In this example, we say we have $261,100 in direct costs. These are sometimes called prime costs.

    Factory Overhead
    Indirect manufacturing costs Manufacturing overhead Total overhead Fixed or variable overhead

    Examples of Factory Overhead Costs


    1. 2. 3. 4. 5. 6. 7. 8. Factory Supervisors Salaries Plant Maintenance & Repairs Expense Factory Utilities Indirect Labor Property Taxes - Factory Plant Insurance Indirect Materials Depreciation on Plant Assets

    This is not an exhaustive list. The common theme of all of them is that they are necessary costs incurred to support the production process & they are not directly traceable to any specific product made. Also, it is the problem in cost accounting.

    Examples of Costs that are not Factory Overhead Costs


    1. 2. 3. 4. 5. 6. 7. General Administrative Expenses Selling Expenses Depreciation on Sales Office Equipment Other Operating Expenses Income Tax Expense Freight-In Sales Salaries & Wages

    This is also not an exhaustive list. The common theme of all of them is that they are not costs incurred to support the production process. In other words, the production process could continue without incurring these costs. So, back to the cost flows.

    Accounting for Factory Overhead


    As actual overhead costs are incurred, they are debited to the Factory Overhead Control Account. Factory Overhead Work-in-Process Inv. $8,000 DM $ 95,700 DL $165,400 FOH $423,125 Fact.Ins. $ 5,000 Fact.Util. 9,500 Sup.Slry. 38,000 . . . . . . Fact.Dep.155,000 $423,125 $423,125

    $12,000

    Computing Cost of Goods Manufactured


    Work-in-Process Inv. $8,000 DM $ 95,700 DL $165,400 FOH $423,125 $680,225 Beginning balance plus inputs less ending balance will tell us the costs that were credited during the period. In this example, that is $680,225($8,000+$95,700+$165,400 +$423,125-$12,000=$680,225). This is the cost of goods manufactured (COGM).

    $12,000

    Terminology
    Work-in-Process Inv. $8,000 Direct or Prime Costs = DM + DL DM $ 95,700 DL $165,400 FOH $423,125 $12,000

    $680,225

    Terminology
    Work-in-Process Inv. $8,000 DM $ 95,700
    Conversion Costs = DL + FOH

    $680,225

    DL $165,400 FOH $423,125 $12,000

    Terminology
    Work-in-Process Inv. $8,000
    Tot. Mfg. Costs or Product Cost= DM +DL + FOH

    DM $ 95,700 DL $165,400 FOH $423,125 $12,000

    $680,225

    Terminology
    Work-in-Process Inv. $8,000
    Tot. Costs to Account for = Beg. Inv. + DM +DL + FOH Cost of Goods Manufactured (COGM)

    DM $ 95,700 DL $165,400 FOH $423,125 $12,000

    $680,225

    More Terminology
    Work-in-Process Inv. $8,000 DM $ 95,700 DL $165,400 FOH $423,125 $680,225 Finished Goods Inv. $ 10,000 $680,225

    $679,225 COGS

    $12,000

    $ 11,000

    Overview of Inventories & Cost Flows

    Direct Materials $ 5,000 $97,200 $6,500 $95,700

    Work-in-Process $8,000 $ 95,700 $165,400 $680,225

    Finished Goods $10,000 $680,225 $679,225 $11,000

    $423,125
    $12,000

    Cost Flows Summary

    DM Used:
    Beg. DM + Purchased DM Available - End. DM DM Used xxx xxx xxx xxx xxx

    COGS: Beg. FG xxx + COGM xxx Cost avail. For sale xxx - End. FG xxx COGS xxx

    COGM: Beg. WIP + DM Used + DL + OH Cost to acc. For - End. WIP COGM

    Net Income:
    Revenue + COGS Gross Margin xxx - Other Expenses NI

    xxx xxx xxx xxx xxx xxx xxx

    xxx xxx xxx xxx

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