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COST ACCOUNTING

Matz & Usry7th edition

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COST ACCOUNTING

Technique or method for determining the

cost of a product, process or thing.

Comprehensive set of principles, methods

and techniques in the determination and

appropriate analysis of cost to meet theneeds of management accounting.

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COST CONCEPTS

Manufacturing Costs

Manufacturing consists of activities to

convert raw materials into finished

goods.

In contrast, a merchandising firm sellsgoods in the form in which they were

bought.

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COST CONCEPTS

Manufacturing Costs - Materials

Direct Materials

Raw materials - basic materials used in manufacturing.

Raw materials that can be physically and directlyassociated with the finished product are calleddirect materials.

Examples include

Flour in the baking of breadSyrup in the bottling of soft drinksSteel used in making automobiles

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COST CONCEPTS

Manufacturing Costs- Materials Indirect Materials

Raw materials that cannot be easily associated with the

finished product are called indirect materials.

Indirect materials do not physically become part of the

finished product orrepresent too small a part of the

finished product in terms of cost

Considered part ofmanufacturing overhead

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MANAGERIAL COST CONCEPTS

Manufacturing Costs - LaborDirect Labor

Work of factory employees that can be physically and

directly associated with converting raw materials intofinished goods

Examples include

Bottlers at Coca-ColaBakers at Sara Lee

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Manufacturing Costs - Labor Indirect Labor

Work of factory workers that have no physical association

with the finished product or for which it is impractical to

trace to the goods produced

Examples include

Wages of maintenance workers

SupervisorsTime-Keepers

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Manufacturing Costs Manufacturing

Overhead Costs that are indirectly associated with manufacturing

the product

Examples includeIndirect materialsIndirect laborDepreciation on factory buildingsInsurance, taxes, maintenance on

factory facilities

Basically manufacturing overhead includes allmanufacturing costs exceptdirect materials and directlabor.

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PRODUCT VERSUS PERIOD

COSTSProduct Costs

Consist of the direct material cost, the direct labor

cost, and the manufacturing overhead cost

A necessary and integral part of producing theproduct

Recorded as inventory when incurred

Do not become expenses until the finished goodsinventory is sold

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COSTS

Period Costs Matched with revenue of a specific time period and charged to

expense as incurred.

Non-manufacturing costs

Deducted from revenues in period incurred to determine netincome

Include all Selling expenses

General and Administrative expenses

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COSTSAll cost

Product cost Period cost

Material

Labor

FOH

Selling and Admin

Expenses

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Raw material used

Raw material beginning 50,000

Net Purchases of raw material-(return and discount)

300,000

Carriage in 5000

Raw material available for use 355,000

Raw material ending -40,000

Raw material used 315,000

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Prime cost


Direct labor 200,000

Direct expenses or cost 45,000

Prime cost 560,000

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Conversion cost


Factory overhead 160,000

Conversion cost 360,000

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Total manufacturing cost

Direct material used

Direct labor

Direct expenses

Factory overhead

+

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Direct expense 45,000



Total manufacturing cost 720,000

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Cost of goods manufactured


+Work In Process- beginning

-Work In Process-ending

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Cost of goods manufactured


Add: Work-in-process-beg 56,000

Less: Work-in-process-end 75,000

Cost of goods manufactured 701,000

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COST OF GOODS SOLD of Trading activities

Opening Stock 50,000

Purchases-net 400,000

Goods available for sale 450,000

Less: Ending stock (80,000)

Cost of goods sold 370,000

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Cost of Goods Sold of Manufacturing concern

Finished goods-opening 125,000

Cost of goods manufactured 701,000

Goods available for sale 826,000

Less: Finished goods-ending (37800)

Cost of goods sold 788200

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STATEMENT OF COST OF GOODS MANUFACTURED

Raw material used

Raw material beginning 50,000

Purchases 300,000

Carriage in 5000

available for use 355,000

Raw material ending -40,000



Direct expenses or cost 45,000

Prime cost 560,000



Add: Work-in-process-beg 56,000

Less: Work-in-process-end 75,000

INCOME STATEMENT

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INCOME STATEMENT

Sales revenue 1500000

less: Sales return 20,000

Sales discount 15000

Net Sales 1,465,000

Less: Cost of goods sold

Finished goods-opening 125,000

Cost of goods manufactured 701,000Goods available for sale 826,000

Less: Finished goods-ending 37800

Cost of goods sold 788,200

Gross Profit 676,800

Less: Operating expense

Administrative expense 75,000

Selling expense 60,000

Total expense 135,000

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CLOSING ENTRIES

Manufacturing summary account 816000

Raw material-op 50000

Work-in-process-op 56000

Purchases 300000Transportation-in 5000


Direct expenses 45000

Factory overhead 160000

(To close various debit items of

manufactuing cost)

Raw material-end 40000

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Raw material-end 40000

Work-in-process-end 75000

Purchases return

Purchases discount

Manufacturing summary 115000

(To close various credit item ofmanufacturing cost)

Income summary account 701000manufacturing summary 701000

( to close manufacturing summary

a/c)

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