Download - Basic element in Cost Accounting
Course Learning Objectives (CLO 2)
Show correctly costing principles and cost
behaviours in manufacturing and servicing environment
(material, labour and overheads)
THE ELEMENTS OF COST
DIRECT MATERIAL WAGE &
LABOUR
OVERHEAD
© 2009 McGraw-Hill Ryerson Limited
1-4
Learning Objective 1
Understand the elements of cost in accounting
We separate manufacturing costs into three categories: Manufacturing costs relate to making a product.
Corporate Organization Chart
Purcha sing Personnel V ice PresidentO pera tions
T reasurer C ontro ller
C hief F ina ncia lO fficer
President
B oa rd of D irectors
Mixed costs contain components of both variable and fixed cost behavior patterns. Mixed costs are sometimes called semivariable or semifixed costs.
Mixed costs contain components of both variable and fixed cost behavior patterns. Mixed costs are sometimes called semivariable or semifixed costs.
MIXED COST GRAPH
Mixed costs contain components of both variable and fixed cost behavior patterns. Mixed costs are sometimes called semivariable or semifixed costs.
FOR MORE INFORMATION ABOUT INTRODUCTION TO
COST ELEMENT
CLICK HEREBACK
© 2009 McGraw-Hill Ryerson Limited
1-21
Learning Objective 2
Identify raw material and store organisation
DIRECT MATERIAL
The manufacture of products or goods required material as the first basic
element. These materials generally fall in to categories. These categories are direct
materials and indirect materials. The materials used in the course of
manufacture which enters into and becomes part of the product. Metals in the
manufacture of fans, boilers,
automobiles, aeroplans; wood in manufacture of furniture, silk, ribbon and
leather band used in making a hat, cloth in tailoring garments, Clay in the
manufacturing of bricks, leather in the manufacture of shoes, wheat used in milling flour are called direct material.
Direct material forms an integral part of the finished product and can be directly
identified or included in computing the cost of such product. In other words, it is the material which can be directly measured and charged to the cost of the order or product being manufactured without requiring excessive and uneconomical
details for such measurements and identification.
Examples Direct Materials
Publishing company
Paper, ink, book covers
Automobile manufacturer
Tires, automobile metal parts
Computer manufacturer
Hard drives, monitors
© 2009 McGraw-Hill Ryerson Limited
1-27
Learning Objective
Identify labour and wage analysis
is the cost of wages to be paid to individuals who work on specific products or in other words, the cost of wages of employees who are directly involved in converting raw materials into finished goods.
Direct labor
Almost any production plant or factory requires employees to operate equipment, move raw materials from the warehouse to equipment, and so on. These employees are directly involved in the production process and the cost of their remuneration and benefits represents direct labor:
Direct labor
Usually direct labor is a variable cost. In most situations the amount of direct labor required is directly correlated with the amount of finished goods produced. For example, wages and related benefits of employees who operate machinery to produce valves represent direct labor costs for Friends Company.
Direct labor
The more valves are to be produced, the more employees will be required to operate machinery, paint, assemble, etc.
Direct labor
Idle time represents the labour cost of direct labour employees who are unable to perform their assigned duties due to machine breakdowns, material shortages, power failures, etc.The labour costs for idle time hours are charged to Mfg. Overhead at normal wage rates. regardless of when the hours were worked. Note: DL represents productive hours worked at regular pay rateIdle time represents non-productive hours at regular pay rates
Idle Time
Any premium paid for labour time in excess of normal work times for direct labour employees is treated as part of MO. We are dealing only with the premium. The regular wage even for excess hours over and above normal work times is still charged to Direct Labour.
Overtime Premium
Halsey Scheme
Halsey Weir
Scheme
Rowan Scheme
© 2009 McGraw-Hill Ryerson Limited
1-35
Learning Objective 3
Identify Overhead Categories
MORE NOTES ON THIS CLICKADDITIONAL 1ADDITIONAL 2ADDITIONAL 3
FORMULA
36
GO TO OVERHEAD
NOTES