Welcome Back Atef Abuelaish1 Welcome Back Time for Any Question Atef Abuelaish2 CHAPTER # 01 REVIEW REVIEW Atef Abuelaish3 Chapter 01 Managerial Accounting Concepts and Chapter 01 Managerial Accounting Concepts and Principles Purpose of Managerial Accounting Purpose of Managerial Accounting 6 Managerial accounting provides financial and nonfinancial information for managers of an organization and other decision makers. Managerial Accounting Basics 7 C 1 Purpose of Managerial Accounting 8 C 1 Nature of Managerial Accounting 9 C 1 Fraud and Ethics in Managerial Accounting 10 Fraud affects all business and it is costly: A 2014 Report to the Nation from the Association of Certified Fraud Examiners (ACFE) estimates the average U.S. business loses 5% of its annual revenues to fraud. The Institute of Management Accountants has issued a code of ethics to help accountants involved in solving ethical dilemmas. C 1 Cost Classifications Cost Classifications 11 Activity Cost Activity Cost Types of Cost Classifications Classification by Behavior 12 Cost behavior refers to how a cost will react to changes in the level of business activity. Total fixed costs do not change when activity changes. Total variable costs change in proportion to activity changes. C 2 Direct costs Costs traceable to a single cost object. Examples: material and labor cost for a product. Indirect costs Costs that cannot be traced to a single cost object. Example: A maintenance expenditure benefiting two or more departments. Types of Cost Classifications Classification by Traceability 13 C 2 Comparing Product and Period Costs Comparing Product and Period Costs 14 Product Types of Cost Classifications Classification by Function 15 Direct Labor Direct Material Manufacturing Overhead Period costs are expenses not attached to the product. Administrative costs are non-manufacturing costs of staff support and administrative functions. Selling costs are incurred to obtain orders and to deliver finished goods to customers. C 3 Period and Product Costs in Financial Statements 16 C 3 Identifications of Cost Classifications 17 C 3 Cost Concepts for Service Companies 18 C 3 The cost concepts described are generally applicable to service organizations. For example, the cost of beverages for passengers of Southwest Airlines is a variable cost based on number of passengers. Following are the costs of a company that manufactures computer chips. Classify each as either a product cost or a period cost. Then classify each of the product costs as direct material, direct labor, or factory overhead. 1. Plastic board used to mount the chip5. Real estate taxes paid on the factory 2. Advertising costs6. Factory supervisor salary 3. Factory maintenance workers salaries7. Depreciation on factory equipment 4. Real estate taxes paid on the sales office8. Assembly worker hourly pay to make chips Direct Material Direct Labor Factory Overhead Period Cost 1. Plastic board used to mount the chipX 2. Advertising costsX 3. Factory maintenance workers salariesX 4. Real estate taxes paid on the sales officeX 5. Real estate taxes paid on the factoryX 6. Factory supervisor salaryX 7. Depreciation on factory equipmentX 8. Assembly worker hourly pay to make chipsX Product Costs All Factory Costs Assets on Balance Sheet Period Costs Non-Factory Costs Expensed on Income Statement as Selling, General and Administrative C2/C 3 19 Manufacturers Costs 20 C 3 Example: Steel used in the frame of a mountain bike. Direct Materials 21 Direct material costs are the expenditures for direct materials that are separately and readily traced through the manufacturing process to finished goods. C 3 Example: Wages paid to a mountain bike assembly worker. Direct Labor 22 Direct labor costs are the wages and salaries for direct labor that are separately and readily traced through the manufacturing process to finished goods. C 3 Examples: Indirect labor maintenance. Indirect material cleaning supplies. Factory utility costs. Supervisory costs. Factory Overhead 23 Factory overhead consists of all manufacturing costs that are not direct materials or direct labor and the costs cannot be separately or readily traced to finished goods. C 3 Direct Material Direct Labor Manufacturing Overhead Prime Cost Conversion Cost Manufacturing costs are often combined as follows: Prime and Conversion Costs 24 C 3 Balance Sheet Balance Sheet 25 Merchandisers... Buy finished goods. Sell finished goods. SaleMart Manufacturers... Buy raw materials. Produce and sell finished goods. Reporting Manufacturing Activities 26 C 4 MERCHANDISER Current Assets Cash Receivables Merchandise Inventory MANUFACTURER Current Assets Cash Receivables Inventories Raw Materials Goods in Process Finished Goods The primary difference is inventory. Manufacturers Balance Sheet 27 C 4 Manufacturers Balance Sheet 28 Completed products for sale. Materials waiting to be processed. Can be direct or indirect. Partially complete products. Material to which some labor and/or overhead have been added. Raw Materials Finished Goods Goods in Process C 4 Income Statement Income Statement 29 Manufacturers Income Statement 30 P 1 Cost of Goods Sold for a Merchandiser and Manufacturer 31 P 1 Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers. NEED-TO-KNOW Indicate whether the following financial statement items apply to a manufacturer, a merchandiser, or a service provider. Some items apply to more than one type of organization. 1. Merchandise inventory4. Operating expenses 2. Finished goods inventory5. Cost of goods manufactured 3. Cost of goods sold6. Supplies inventory ManufacturerMerchandiserService Provider 1. Merchandise inventoryX 2. Finished goods inventoryX 3. Cost of goods soldXX 4. Operating expensesXXX 5. Cost of goods manufacturedX 6. Supplies inventoryXXX Manufacturer Produces units for sale Balance Sheet includes: Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Merchandiser Purchases units for resale Balance Sheet includes: Merchandise Inventory Service Provider Does not provide a product to its customers; no inventories. P 1 32 Flow of Manufacturing Activities Flow of Manufacturing Activities 33 Activities and Cost Flows in Manufacturing 34 C 5 Schedule of Cost of Goods Manufactured Schedule of Cost of Goods Manufactured 35 Summarizes the types and amounts of costs incurred in a companys manufacturing process. Schedule of Cost of Good Manufactured 36 Direct Materials Used +Direct Labor +Factory Overhead =Total Manufacturing Costs +Beginning Work in Process Ending Work in Process =Cost of Goods Manufactured P 2 Manufacturing Statement 37 P 2 Manufacturing Statement 38 Include all direct labor costs incurred during the current period. Manufacturing Statement 39 P 2 Manufacturing Statement 40 P 2 Manufacturing Statement 41 P 2 Overhead Cost Flows Across Accounting Reports 42 P 2 NEED-TO-KNOW Compute the following three measures using the information below. 1. Cost of materials used 2. Cost of goods manufactured 3. Cost of goods sold Beginning raw materials inventory$15,500Ending raw materials inventory$10,600 Beginning work in process inventory29,000Ending work in process inventory44,000 Beginning finished goods inventory24,000Ending finished goods inventory37,400 Raw materials purchased66,000Direct labor used38,000 Total factory overhead used80,000 Beg. Inv.15,500Beg. Inv.29,000Beg. Inv.24,000 Purchases66,000Matls. Used70,900Cost of GM173,900 Direct Labor38,000 Fact. OH80,000 Avail for Use81,500Avail for Mfg.217,900Avail for Sale197,900 Matls. Used70,900Cost of GM173,900Cost of GS160,500 End. Inv.10,600End. Inv.44,000End. Inv.37,400 Finished Goods Inventory Cost of Direct Materials transferred from Raw Materials Inventory to Work in Process Inventory. Cost of goods completed in the current period and transferred from Work in Process Inventory to Finished Goods Inventory. Cost of goods leaving Finished Goods Inventory and going to the customer. Expensed on the income statement. Raw Materials InventoryWork in Process Inventory $70,900 $173,900 $160,500 P1/P 2 43 NEED-TO-KNOW Beg. Inv.15,500Beg. Inv.29,000Beg. Inv.24,000 Purchases66,000Matls. Used70,900Cost of GM173,900 Direct Labor38,000 Fact. OH80,000 Avail for Use81,500Avail for Mfg.217,900Avail for Sale197,900 Matls. Used70,900Cost of GM173,900Cost of GS160,500 End. Inv.10,600End. Inv.44,000End. Inv.37,400 Finished Goods InventoryRaw Materials InventoryWork in Process Inventory Balance Sheet Current assets: Raw Materials Inventory$10,600 Work in Process Inventory44,000 Finished Goods Inventory37,400 Income Statement Sales$XXXXX Cost of Goods Sold(160,500) P1/P 2 44 Trends in Managerial Accounting Trends in Managerial Accounting 45 Trends in Managerial Accounting 46 Customer Orientation E-Commerce Global Economy Service Economy Lean Practices Value Chain C 6 Customer Orientation 47 C 6 Quality improvement applied to all aspects of business activities. Seek and uncover waste. Employees encouraged to try new methods to improve quality. Company emphasizes value of quality through quality awards. Total Quality Management 48 C 6 Constant Focus on Higher Standards Complete products just-in-time to ship to customers Complete parts just-in-time for assembly into products Schedule Production Receive materials just-in-time for production Receive customer orders Just-In-Time (JIT) Manufacturing 49 C 6 Value Chain 50 The value chain refers to the series of activities that add value to a companys products or services. Companies can use lean practices to increase efficiency and profits. C 6 Raw Materials Inventory Turnover and Days Sales Raw Materials Inventory Turnover and Days Sales 51 1) Raw Materials Inventory Turnover 52 A1 Raw materials Inventory turnover = Raw materials used Average materials inventory Important Stuff Raw materials Inventory turnover = Raw materials used / Average materials inventory Manufacturers cost of Goods Sold (COGS) = Beg. Inventory + Purchases Costs End. Inventory = COGS Merchandisers Cost of Goods Sold = Beg. Inventory + Cost of Goods Manufactured End. Inventory = COGS Cost of Goods Manufactured = Direct Materials + Direct Labors + Factory Overhead = Total Manufacturing Costs + Beg. Work in Progress - End. Work in Progress = Cost of Goods Manufactured Atef Abuelaish53 Chapter 02 Job Order Costing and Chapter 02 Job Order Costing and Analysis Job Order Costing Job Order Costing 56 Process Costing Job Costing Used for production of large, unique, or high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job. Used for production of large, unique, or high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job. Cost Accounting Systems 57 Chapter 7 C 1 Job Order Production 58 C 1 Job Order Production Activities Job Order Production Activities 59 C 1 Job Cost Sheet Job Cost Sheet 60 Job Order Cost Documents 61 job cost sheet The primary document for tracking the costs associated with a given job is the job cost sheet. C 2 Job Cost Sheet 62 C 2 Materials Cost Flows and Documents 63 Materials Ledger Card 64 P 1 Materials Requisition 65 P 1 Materials Requisition 66 P 1 NEED-TO-KNOW A manufacturing company purchased $1,200 of materials (on account) for use in production. The company used $200 of direct materials on Job 1 and $350 of direct materials on Job 2. Prepare journal entries to record the above transactions. DebitCredit PurchaseRaw Materials Inventory1,200 Accounts Payable1,200 Use - DMWork in Process Inventory550 Raw Materials Inventory550 Beg. Inv.XXXBeg. Inv. Purchases1,200Direct Materials550 Direct Material550Direct Labor Factory OH Direct Materials200Direct Materials350 Direct Labor Factory OH Job 1Job 2 General Journal Raw Materials InventoryWork in Process Inventory P 1 67 Labor Cost Flows and Documents Labor Cost Flows and Documents 68 Labor Cost Flows 69 P 2 Labor Time Ticket 70 P 2 Labor Time Ticket 71 P 2 Direct labortraceable to specific jobs Job B $ 1,000 Job B Job B ,100 Job B Job B Total direct labor $4,200 Indirect labor ,100 Total $ 5,300 NEED-TO-KNOW A manufacturing company used $5,400 of direct labor in production activities in May. Of this amount, $3,100 of direct labor was used on Job A1 and $2,300 of direct labor was used on Job A2. Prepare the journal entry to record direct labor used. DebitCredit Work in Process Inventory5,400 Factory Wages Payable5,400 Beginning Inv. Direct Materials5,400 Direct Labor5,400 Factory OH Direct Materials Direct Labor3,100Direct Labor2,300 Factory OH Job A1Job A2 General Journal Factory Wages PayableWork in Process Inventory P 2 72 Overhead Cost Flows and Documents Overhead Cost Flows and Documents 73 Overhead Cost Flows and Predetermined Overhead Rate 74 P 3 Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs. Predetermined Overhead Rate 75 P 3 Predetermined Overhead Rate 76 P 3 NEED-TO-KNOW A manufacturing company estimates it will incur $240,000 of overhead costs in the next year. The company allocates overhead using machine hours, and estimates it will use 1,600 machine hours in the next year. During the month of June, the company used 80 machine hours on Job 1 and 70 machine hours on Job Compute the predetermined overhead rate to be used to apply overhead during the year. 2. Determine how much overhead should be applied to Job 1 and to Job 2 for June. 3. Prepare the journal entry to record overhead applied for June. =$150 per machine hour Machine Hours Used Job 1 Job 2 Total DebitCredit Work in Process Inventory22,500 Factory Overhead22, hoursx $150 per hour General Journal x Predetermined OH rate= OH Applied 80 hours 70 hours x $150 per hour = $12,000 OH applied = $10,500 OH applied = $22,500 OH applied $240,000 1,600 machine hours Predetermined Overhead Rate =Estimated Overhead Costs Estimated Activity Base P 3 77 R ECORDING A CTUAL O VERHEAD Indirect Material Indirect Labor Other P 3 78 R ECORDING I NDIRECT M ATERIALS U SED P 3 79 R ECORDING I NDIRECT L ABOR U SED P 3 80 R ECORDING O THER O VERHEAD C OSTS P 3 81 NEED-TO-KNOW A manufacturing company used $400 of indirect materials and $2,000 of indirect labor during the month. The company also incurred $1,200 of depreciation on factory equipment, $500 of depreciation on office equipment, and $300 of factory utilities. Prepare the journal entry to record actual factory overhead costs incurred during the month. DebitCredit Factory Overhead3,900 Raw Materials Inventory400 Factory Wages Payable2,000 Accumulated Depreciation - Factory Equipment1,200 Utilities Payable300 General Journal Actual OH IncurredOH Applied to Production Ind. Materials400 Ind. Labor2,000 Fact. Deprec.1,200 Fact. Utilities300 3,900 Factory Overhead P 3 82 Summary of Cost Flows P 3 83 Summary of Cost Flows P 3 84 Summary of Cost Flows P 3 85 Schedule of Cost of Goods Manufactured P 3 86 Adjusting Factory Overhead 87 P 3 Underapplied or Overapplied Overhead Underapplied or Overapplied Overhead 88 Underapplied or Overapplied Overhead 89 P 4 NEED-TO-KNOW A manufacturing company applied $300,000 of overhead to its jobs during the year. For the independent scenarios below, prepare the journal entry to adjust over- or underapplied overhead. Assume the adjustment amounts are not material. 1. Actual overhead costs incurred during the year equal $305, ,000300,000 Underapplied OH5,000 DebitCredit Cost of Goods Sold5,000 Factory Overhead5,000 Factory Overhead Actual OH IncurredOH Applied to Production General Journal P 4 90 NEED-TO-KNOW A manufacturing company applied $300,000 of overhead to its jobs during the year. For the independent scenarios below, prepare the journal entry to adjust over- or underapplied overhead. Assume the adjustment amounts are not material. 2. Actual overhead costs incurred during the year equal $298, ,500300,000 Overapplied1,500 DebitCredit Factory Overhead1,500 Cost of Goods Sold1,500 Factory Overhead Actual OH IncurredOH Applied to Production General Journal P 4 91 Global View 92 Porsche AG manufactures high-performance cars. Each car is built according to individual customer specifications. Customers can use the Internet to place orders for their dream cars. Porsche employs just-in-time inventory techniques to ensure a flexible production process that can respond rapidly to customer orders. For a recent year, Porsche reported 33,781 million in costs of materials and 9,038 million in personnel costs, which helped generate 57,081 million in revenue. Homework assignment 660 Using Connect 6 Questions for 60 Points. 10 Complete the Connect Orientation at Connect web site for 10 points, before 2/15/2016. Prepare chapter 3 Process Costing and Analysis. Happiness is having all homework up to date Atef Abuelaish93 Thank you and See You Wednesday at the Same Time, Take Care Thank you and See You Wednesday at the Same Time, Take Care Atef Abuelaish94