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2010 The McGraw-Hill Companies, Inc.


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2010 The McGraw-Hill Companies, Inc.

Presented to:

Athar Ikram Khan

Presented by:Faizan Anjum (2113189)

Saqib Iqbal (2113201)

Malik Zeeshan (2113235)

Sadaf Naeem(2113152)

Managerial Accountingand Cost Concepts


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McGraw-Hill/Irwin Slide 3

Planning

Controlling

Directing and

Motivating


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Identifyalternatives.

Select alternative that doesthe best job of furtheringorganizations objectives.

Develop budgets to guideprogress toward theselected alternative.


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The control function ensuresthat plans are being followed.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.


7/25McGraw-Hill/Irwin Slide 7

The Product

DirectMaterials

DirectLabor

ManufacturingOverhead



Raw materials that become an integralpart of the product and that can beconveniently traced directly to it.

Example: A radio installed in an automobile



Those labor costs that can be easily tracedto individual units of product.

Example: Wages paid to automobile assembly workers



Those labor costs that can be easily traced toindividual units of product.

Example: Wages paid to automobile assembly workers


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Product costs includedirect materials, direct

labor, and

manufacturingoverhead.

Period costs include allselling costs and

administrative costs.

Inventory Cost of Good Sold

BalanceSheet

IncomeStatement

Sale

Expense

IncomeStatement


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Merchandisers . . .

Buy finishedgoods.

Sell finishedgoods.

Manufacturers . . .

Buy rawmaterials.

Produce and sellfinished goods.

MegaLoMart

McGraw-Hill/Irwin



Cost of goods sold for manufacturers differs onlyslightly from cost of goods sold for merchandisers.

Manufacturing Company

Cost of goods sold:Beg. finished

goods inv. 14,200$

+ Cost of goods

manufactured 234,150

Goods available

for sale 248,350$- Ending

finished goods

inventory (12,100)

= Cost of goods

sold 236,250$

Merchandising Company

Cost of goods sold:Beg. merchandise

inventory 14,200$

+ Purchases 234,150

Goods available

for sale 248,350$

- Endingmerchandise

inventory (12,100)

= Cost of goods

sold 236,250$


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Direct costs

Costs that can beeasily and

conveniently tracedto a unit of productor other cost object.

Examples: direct

material and directlabor

Indirect costs

Costs that cannot beeasily and

conveniently tracedto a unit of productor other cost object.

Example:

manufacturingoverhead

McGraw-Hill/Irwin


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Sunk costs have already been incurred and cannot bechanged now or in the future. These costs should

be ignored when making decisions.

Example: You bought an automobile that cost$10,000 two years ago. The $10,000 cost is sunkbecause whether you drive it, park it, trade it, or sellit, you cannot change the $10,000 cost.



The labor costs incurred

during idle time are ordinarilytreated as manufacturing

overhead.

MachineBreakdowns

MaterialShortages

PowerFailures



The overtime premiums for all factoryworkers are usually considered to be part

of manufacturing overhead.


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PreventionCosts

Support activitieswhose purpose is toreduce the number of

defects

Appraisal Costs

Incurred to identifydefective products

before the products areshipped to customers


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Internal FailureCosts

Incurred as a result ofidentifying defects

before they are shipped

External FailureCosts

Incurred as a result ofdefective productsbeing delivered to

customers


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