Welcome Back Atef Abuelaish 1 Welcome Back Time
Welcome Back Atef Abuelaish 1
Welcome Back Time for Any Question Atef Abuelaish 2
CHAPTER # 01 REVIEW Atef Abuelaish 3
Chapter 01 Managerial Accounting Concepts and Atef Abuelaish 4
Chapter 01 Managerial Accounting Concepts and Principles Atef Abuelaish 5
Purpose of Managerial Accounting Atef Abuelaish 6
Managerial Accounting Basics Managerial accounting provides financial and nonfinancial information for managers of an organization and other decision makers. C 1 Atef Abuelaish 7
Purpose of Managerial Accounting C 1 Atef Abuelaish 8
Nature of Managerial Accounting C 1 Atef Abuelaish 9
Fraud and Ethics in Managerial Accounting 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 Atef Abuelaish 10
Cost Classifications Atef Abuelaish 11
Types of Cost Classifications Classification by Behavior 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. Cost Activity C 2 Atef Abuelaish • Total variable costs change in proportion to activity changes. 12
Types of Cost Classifications Classification by Traceability Direct costs l l C 2 Costs traceable to a single cost object. Examples: material and labor cost for a product. Atef Abuelaish Indirect costs l l Costs that cannot be traced to a single cost object. Example: A maintenance expenditure benefiting two or more departments. 13
Types of Cost Classifications Classification by Function Direct Labor Direct Material Manufacturing Overhead Product Period costs are expenses not attached to the product. Selling costs are incurred to obtain orders and to deliver finished goods to customers. C 3 Atef Abuelaish Administrative costs are non-manufacturing costs of staff support and administrative functions. 14
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 chip 2. Advertising costs 3. Factory maintenance workers’ salaries 4. Real estate taxes paid on the sales office 5. Real estate taxes paid on the factory 6. Factory supervisor salary 7. Depreciation on factory equipment 8. Assembly worker hourly pay to make chips Product Costs All Factory Costs Assets on Balance Sheet C 2/C 3 Atef Abuelaish 5. Real estate taxes paid on the factory 6. Factory supervisor salary 7. Depreciation on factory equipment 8. Assembly worker hourly pay to make chips Product Costs Direct Factory Material Labor Overhead X Period Cost X X X X Period Costs Non-Factory Costs Expensed on Income Statement as Selling, General and Administrative 15
Direct Materials Direct material costs are the expenditures for direct materials that are separately and readily traced through the manufacturing process to finished goods. Example: Steel used in the frame of a mountain bike. C 3 Atef Abuelaish 16
Direct Labor Direct labor costs are the wages and salaries for direct labor that are separately and readily traced through the manufacturing process to finished goods. Example: Wages paid to a mountain bike assembly worker. C 3 Atef Abuelaish 17
Factory Overhead 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. Examples: Indirect labor – maintenance. Indirect material – cleaning supplies. Factory utility costs. Supervisory costs. C 3 Atef Abuelaish 18
Prime and Conversion Costs Manufacturing costs are often combined as follows: Direct Material Direct Labor Prime Cost C 3 Atef Abuelaish Manufacturing Overhead Conversion Cost 19
Manufacturer’s Balance Sheet MERCHANDISER Current Assets u u u Cash Receivables Merchandise Inventory MANUFACTURER Current Assets u u u Cash Receivables Inventories Raw Materials Goods in Process Finished Goods The primary difference is inventory. C 4 Atef Abuelaish 20
Manufacturer’s Balance Sheet Raw Materials Goods in Process Finished Goods Materials waiting to be processed. Partially complete products. Completed products for sale. Can be direct or indirect. Material to which some labor and/or overhead have been added. C 4 Atef Abuelaish 21
Manufacturer’s Income Statement P 1 Atef Abuelaish 22
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 inventory 2. Finished goods inventory 3. Cost of goods sold Manufacturer 4. Operating expenses 5. Cost of goods manufactured 6. Supplies inventory Merchandiser Produces units for sale Purchases units for resale Balance Sheet includes: Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Balance Sheet includes: Merchandise Inventory Manufacturer 1. Merchandise inventory 2. Finished goods inventory 3. Cost of goods sold 4. Operating expenses 5. Cost of goods manufactured 6. Supplies inventory P 1 Atef Abuelaish X X X Service Provider Does not provide a product to its customers; no inventories. Merchandiser X Service Provider X X X 23
Activities and Cost Flows in Manufacturing C 5 Atef Abuelaish 24
Schedule of Cost of Good Manufactured Summarizes the types and amounts of costs incurred in a company’s manufacturing process. P 2 Atef Abuelaish + + = + – = Direct Materials Used Direct Labor Factory Overhead Total Manufacturing Costs Beginning Work in Process Ending Work in Process Cost of Goods Manufactured 25
NEED-TO-KNOW Compute the following three measures using the information below. 1. Cost of materials used $70, 900 Cost of Direct Materials transferred from Raw Materials Inventory to Work in Process Inventory. 2. Cost of goods manufactured $173, 900 Cost of goods completed in the current period and transferred from Work in Process Inventory to Finished Goods Inventory. 3. Cost of goods sold $160, 500 Cost of goods leaving Finished Goods Inventory and going to the customer. Expensed on the income statement. Beginning raw materials inventory Beginning work in process inventory Beginning finished goods inventory Raw materials purchased Total factory overhead used Raw Materials Inventory Beg. Inv. Purchases 15, 500 66, 000 Avail for Use 81, 500 P 1/P 2 10, 600 Atef Abuelaish Ending raw materials inventory $10, 600 Ending work in process inventory 44, 000 Ending finished goods inventory 37, 400 Direct labor used 38, 000 Work in Process Inventory Beg. Inv. Matls. Used Direct Labor Fact. OH Avail for Mfg. Matls. Used End. Inv. $15, 500 29, 000 24, 000 66, 000 80, 000 29, 000 70, 900 38, 000 80, 000 217, 900 70, 900 44, 000 24, 000 173, 900 Avail for Sale 197, 900 Cost of GM End. Inv. Finished Goods Inventory Beg. Inv. Cost of GM 173, 900 Cost of GS End. Inv. 160, 500 37, 400 26
NEED-TO-KNOW Raw Materials Inventory Beg. Inv. Purchases 15, 500 66, 000 Avail for Use 81, 500 Matls. Used End. Inv. Work in Process Inventory Beg. Inv. Matls. Used Direct Labor Fact. OH Avail for Mfg. 10, 600 70, 900 44, 000 Balance Sheet Current assets: Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Income Statement Sales Cost of Goods Sold P 1/P 2 Atef Abuelaish Beg. Inv. Cost of GM 24, 000 173, 900 Avail for Sale 197, 900 Cost of GM End. Inv. Finished Goods Inventory 29, 000 70, 900 38, 000 80, 000 217, 900 173, 900 Cost of GS End. Inv. 160, 500 37, 400 $10, 600 44, 000 37, 400 $XXXXX (160, 500) 27
Trends in Managerial Accounting Atef Abuelaish 28
Trends in Managerial Accounting Customer Orientation E-Commerce Lean Practices C 6 Atef Abuelaish Global Economy Service Economy Value Chain 29
Customer Orientation C 6 Atef Abuelaish 30
Total Quality Management Quality improvement applied to all aspects of business activities. Seek and uncover waste. Constant Focus on Higher Standards Employees encouraged to try new methods to improve quality. C 6 Atef Abuelaish Company emphasizes value of quality through quality awards. 31
Just-In-Time (JIT) Manufacturing Receive customer orders Complete products just-in-time to ship to customers Schedule Production Receive materials just-in-time for production C 6 Atef Abuelaish Complete parts just-in-time for assembly into products 32
Value Chain The value chain refers to the series of activities that add value to a company’s products or services. Companies can use lean practices to increase efficiency and profits. C 6 Atef Abuelaish 33
1) Raw Materials Inventory Turnover Raw materials Inventory turnover = A 1 Atef Abuelaish Raw materials used Average materials inventory 34
Important Stuff v Raw materials Inventory turnover = Raw materials used / Average materials inventory v Manufacturers cost of Goods Sold (COGS) = Beg. Inventory + Purchases Costs – End. Inventory = COGS v Merchandisers Cost of Goods Sold = Beg. Inventory + Cost of Goods Manufactured – End. Inventory = COGS v 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 Abuelaish 35
Chapter 02 Job Order Costing and Atef Abuelaish 36
Chapter 02 Job Order Costing and Analysis Atef Abuelaish 37
Job Order Costing Atef Abuelaish 38
Cost Accounting Systems Process Costing Job Costing Chapter 3 § 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. C 1 Atef Abuelaish 39
Job Order Production C 1 Atef Abuelaish 40
Job Order Production Activities C 1 Atef Abuelaish 41
Job Cost Sheet Atef Abuelaish 42
Job Order Cost Documents The primary document for tracking the costs associated with a given job is the job cost sheet C 2 Atef Abuelaish 43
Job Cost Sheet C 2 Atef Abuelaish 44
Materials Cost Flows and Documents Atef Abuelaish 45
Materials Ledger Card P 1 Atef Abuelaish 46
Materials Requisition P 1 Atef Abuelaish 47
Materials Requisition P 1 Atef Abuelaish 48
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. General Journal Purchase Raw Materials Inventory Accounts Payable Debit 1, 200 Use - DM Work in Process Inventory Raw Materials Inventory Beg. Inv. Purchases 550 Work in Process Inventory XXX 1, 200 Direct Material 550 Beg. Inv. Direct Materials Direct Labor Factory OH 550 Job 1 Direct Materials Direct Labor Factory OH P 1 Atef Abuelaish Credit Job 2 200 Direct Materials Direct Labor Factory OH 350 49
Labor Cost Flows and Documents Atef Abuelaish 50
Labor Cost Flows P 2 Atef Abuelaish 51
Labor Time Ticket P 2 Atef Abuelaish 52
Labor Time Ticket Direct labor—traceable to specific jobs Job B 15. . . $ 1, 000 Job B 16. . . 800 Job B 17. . . 1, 100 Job B 18. . . 700 Job B 19. . . Total direct labor. . . . P 2 Atef Abuelaish 600 $4, 200 Indirect labor. . . . . 1, 100 Total. . . . $ 5, 300 53
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 A 1 and $2, 300 of direct labor was used on Job A 2. Prepare the journal entry to record direct labor used. General Journal Work in Process Inventory Factory Wages Payable Work in Process Inventory Beginning Inv. Direct Materials Direct Labor Factory OH P 2 Atef Abuelaish Credit 5, 400 Factory Wages Payable 5, 400 Job A 1 Direct Materials Direct Labor Factory OH Debit 5, 400 Job A 2 3, 100 Direct Materials Direct Labor Factory OH 2, 300 54
Overhead Cost Flows and Documents Atef Abuelaish 55
Overhead Cost Flows and Predetermined Overhead Rate P 3 Atef Abuelaish 56
Predetermined Overhead Rate Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs. P 3 Atef Abuelaish 57
Predetermined Overhead Rate P 3 Atef Abuelaish 58
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 2. 1. Compute the predetermined overhead rate to be used to apply overhead during the year. Predetermined Overhead Rate = Estimated Overhead Costs Estimated Activity Base = $150 per machine hour $240, 000 1, 600 machine hours 2. Determine how much overhead should be applied to Job 1 and to Job 2 for June. Job 1 Job 2 Total Machine Hours Used 80 hours 70 hours 150 hours x Predetermined OH rate x $150 per hour = OH Applied = $12, 000 OH applied = $10, 500 OH applied = $22, 500 OH applied 3. Prepare the journal entry to record overhead applied for June. General Journal Work in Process Inventory Factory Overhead P 3 Atef Abuelaish Debit 22, 500 Credit 22, 500 59
RECORDING ACTUAL OVERHEAD Indirect Material Indirect Labor Other P 3 Atef Abuelaish 60
RECORDING INDIRECT MATERIALS USED P 3 Atef Abuelaish 61
RECORDING INDIRECT LABOR USED P 3 Atef Abuelaish 62
RECORDING OTHER OVERHEAD COSTS P 3 Atef Abuelaish 63
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. General Journal Factory Overhead Raw Materials Inventory Factory Wages Payable Accumulated Depreciation - Factory Equipment Utilities Payable Debit 3, 900 Credit 400 2, 000 1, 200 300 Factory Overhead Actual OH Incurred Ind. Materials Ind. Labor Fact. Deprec. Fact. Utilities P 3 Atef Abuelaish OH Applied to Production 400 2, 000 1, 200 3, 900 64
Summary of Cost Flows P 3 Atef Abuelaish 65
Summary of Cost Flows P 3 Atef Abuelaish 66
Summary of Cost Flows P 3 Atef Abuelaish 67
Schedule of Cost of Goods Manufactured P 3 Atef Abuelaish 68
Adjusting Factory Overhead P 3 Atef Abuelaish 69
Underapplied or Overapplied Overhead Atef Abuelaish 70
Underapplied or Overapplied Overhead P 4 Atef Abuelaish 71
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, 000. Factory Overhead Actual OH Incurred OH Applied to Production 305, 000 Underapplied OH 5, 000 General Journal Cost of Goods Sold Factory Overhead P 4 Atef Abuelaish 300, 000 Debit 5, 000 Credit 5, 000 72
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, 500. Factory Overhead Actual OH Incurred OH Applied to Production 298, 500 300, 000 Overapplied General Journal Factory Overhead Cost of Goods Sold P 4 Atef Abuelaish 1, 500 Debit 1, 500 Credit 1, 500 73
Global View 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. Atef Abuelaish 74
Homework assignment Ø Using Connect – 6 Questions for 60 Points for Chapter 02. Ø Complete the “Connect Orientation” at Connect web site for 10 points, before 09/20/2016. Ø Prepare chapter Analysis. ” 3 “Process Costing and Happiness is having all homework up to date Atef Abuelaish 75
Thank you and See You Next Week at the Same Time, Take Care Atef Abuelaish 76
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