Discussion

edina

Hilton_MA_12e_Chap002_PPT.pptx

Home >Business & Finance homework help >Management homework help >Discussion

Basic Cost

Management Concepts

Chapter 2

McGraw-Hill/Irwin

2-1

Chapter 2: Basic Cost Management Concepts

Learning Objective 2-1 – Explain what is meant by the word cost.

2-2

Learning Objective 2-1. Explain what is meant by the word cost.

Process of Management

Decision Making

Directing

Control

Planning

Strategy

Formulation

Managers need cost information to perform each of these functions.

2-3

The process of management involves formulating strategy, planning, control, decision making, and directing operational activities. Management accounting information helps managers perform each of these functions more effectively. (LO 2-1)

What Do We Mean By a Cost?

A cost is the measure of resources given up to achieve a particular purpose.

2-4

At the most basic level, a cost may be defined as the sacrifice made, usually measured by the resources expended, or given up, to achieve a particular purpose. The word cost can have different meanings depending on the context in which it is used. The important point is that different cost concepts and classifications are used for different purposes. The purpose of this chapter is to enable the users of this text to gain a firm grasp of the cost terminology used in companies, and which will be used throughout the text. (LO 2-1)

Learning Objective 2-2 – Distinguish among product costs, period costs, and expenses.

2-5

Learning Objective 2-2. Distinguish among product costs, period costs, and expenses.

Product Costs, Period Costs, and Expenses

Product costs are costs assigned to inventory, to goods that are either purchased or manufactured for resale. Another term for product cost is inventoriable cost.

Period costs are costs that are expensed during the time period in which they are incurred.

Expenses are the consumption of assets for the purpose of generating revenue.

2-6

One important way of classifying costs is by the timing of their recognition as expenses for financial reporting.

An expense is defined as the cost incurred when a resource (asset) is used up or sold for the purpose of generating revenue. The resource used up can be:

cash, expended directly;

a promise to use up cash in the future, recognized as a liability (accounts payable); or

the reduction in value of a recorded asset such as plant and equipment (via depreciation) or inventory (via cost of goods sold).

The term product cost and period cost are used to describe the timing with which various expenses are recognized.

A product cost is a cost assigned to goods that were either purchased or manufactured for resale. Another term for product cost is inventoriable cost, since a product cost is stored as the cost of inventory until the goods are sold. In the period of the sale, the product costs are recognized as an expense called cost of goods sold.

Period costs are all costs that are not product costs. They are expensed in the period they are incurred. All research and development, selling, and administrative costs are treated as period costs. This is true in manufacturing, retail, and service industry firms. (LO 2-2)

Learning Objective 2-3 – Describe the role of costs in published financial statements.

2-7

Learning Objective 2-3. Describe the role of costs in published financial statements.

Cost Classifications on Financial Statements – Income Statement

Product Costs

Cost of goods sold

Period Costs

Operating expenses

2-8

Product costs appear on the income statement as cost of goods sold in the period in which the products were sold. This is true for merchandising and manufacturing companies.

Period costs appear on the income statement in the period in which they were incurred. Selling and administrative expenses are an example of period costs. (LO 2-3)

Cost Classifications on Financial Statements – Balance Sheet (1 of 4)

Merchandiser

Current Assets

Cash

Receivables

Prepaid Expenses

Merchandise Inventory

Manufacturer

Current Assets

Cash

Receivables

Prepaid Expenses

Inventories

Raw Materials

Work in Process

Finished Goods

2-9

Since retailers, wholesalers, and manufacturers sell inventoriable products, their balance sheets are also affected by product costs. Merchandisers, such as Wal-Mart, list the product cost as merchandise inventories on the balance sheet in the current assets section. (LO 2-3)

Cost Classifications on Financial Statements – Balance Sheet (2 of 4)

Merchandiser

Current Assets

Cash

Receivables

Prepaid Expenses

Merchandise Inventory

Manufacturer

Current Assets

Cash

Receivables

Inventories

Raw Materials

Work in Process

Finished Goods

Those materials waiting to be processed.

2-10

Manufacturers have three types of inventory. Raw-material inventory includes all materials before they are placed into production. (LO 2-3)

Cost Classifications on Financial Statements – Balance Sheet (3 of 4)

Merchandiser

Current Assets

Cash

Receivables

Prepaid Expenses

Merchandise Inventory

Manufacturer

Current Assets

Cash

Receivables

Prepaid Expenses

Inventories

Raw Materials

Work in Process

Finished Goods

Partially completed products – material to which some labor and/or overhead has been added.

2-11

Work-in-process inventory refers to manufactured products that are only partially completed at the date when the balance sheet is prepared. (LO 2-3)

Cost Classifications on Financial Statements – Balance Sheet (4 of 4)

Merchandiser

Current Assets

Cash

Receivables

Prepaid Expenses

Merchandise Inventory

Manufacturer

Current Assets

Cash

Receivables

Prepaid Expenses

Inventories

Raw Materials

Work in Process

Finished Goods

Completed products awaiting sale.

2-12

Finished-goods inventory refers to manufactured goods that are complete and ready for sale. The values of the work-in-process and finished-goods inventories are measured by their product costs. (LO 2-3)

Learning Objective 2-4 – List and describe four types of manufacturing processes.

2-13

Learning Objective 2-4. List and describe four types of manufacturing processes.

Types of Production Processes

2-14

Although there are tens of thousands of manufacturing firms, their basic production processes can be classified into four standard types. The nature of the product and the manufacturing process define the manufacturing costs incurred. The management team is in a better position to manage these costs if they understand the relationship of the production process and the types of costs incurred. This exhibit defines and describes the four standard categories of manufacturing processes. We will study of the role of managerial accounting and cost management in each of these manufacturing processes. (LO 2-4)

Learning Objective 2-5 – Give examples of three types of manufacturing costs.

2-15

Learning Objective 2-5. Give examples of three types of manufacturing costs.

Manufacturing Costs

The Product

Direct Labor

Manufacturing Overhead

Direct Material

2-16

Managerial accountants classify costs by the functional area of the organization to which costs relate. Some examples of functional areas are manufacturing, marketing, administration, and research and development. Manufacturing costs are further classified into the following three categories: direct material, direct labor, and manufacturing overhead. (LO 2-5)

Direct Material

Example:

Steel used to manufacture the automobile.

Cost of raw material that is used to make, and can be conveniently traced, to the finished product.

2-17

Material that is consumed in the manufacturing process, is physically incorporated in the finished product, and can be traced to products conveniently is called direct material. Examples include the sheet metal in an automobile and a microprocessor chip in a computer. (LO 2-5)

Cost of salaries, wages, and fringe benefits for personnel who work directly on manufactured products.

Direct Labor

Example:

Wages paid to an automobile assembly worker.

2-18

The cost of salaries, wages, and fringe benefits for personnel who work directly on the manufactured products is classified as direct-labor cost. (LO 2-5)

Manufacturing Overhead (1 of 3)

All other manufacturing costs

Materials used to support the production process. Examples: lubricants and cleaning supplies used in an automobile assembly plant.

Indirect Labor

Indirect Material

Other Costs

2-19

All other costs of manufacturing are classified as manufacturing overhead, which includes three types of costs: indirect material, indirect labor, and other manufacturing costs. The cost of materials that are required for the production process but do not become an integral part of the finished product are classified as indirect material costs. Materials that do become an integral part of the finished product but are insignificant in cost are also often classified as indirect material. (LO 2-5)

Manufacturing Overhead (2 of 3)

All other manufacturing costs

Cost of personnel who do not work directly on the product. Examples: maintenance workers, janitors, and security guards.

Indirect Labor

Indirect Material

Other Costs

2-20

The costs of personnel who do not work directly on the product, but whose services are necessary for the manufacturing process, are classified as indirect labor. (LO 2-5)

Manufacturing Overhead (3 of 3)

All other manufacturing costs

Examples: depreciation on plant and equipment, property taxes, insurance, utilities, overtime premium, and unavoidable idle time.

Indirect Labor

Indirect Material

Other Costs

2-21

All other manufacturing costs that are neither material nor labor costs are classified as manufacturing overhead. (LO 2-5)

Classifications of Costs in Manufacturing Companies

Manufacturing costs are often combined as follows:

Prime Cost

Conversion Cost

Direct Material

Direct Labor

Manufacturing Overhead

2-22

Direct material and direct labor are often referred to as prime costs. Direct labor and overhead are often called conversion costs, since they are the costs of “converting” raw material into finished products. (LO 2-5)

Manufacturing Cost Flows

2-23

As direct material is consumed in production, its cost is added to work-in-process inventory. Similarly, the costs of direct labor and manufacturing overhead are accumulated in work in process.

When products are finished, their costs are transferred from work-in-process inventory to finished-goods inventory. The total cost of direct material, direct labor, and manufacturing overhead transferred from work-in-process inventory to finished-goods inventory is called the cost of goods manufactured.

The costs then are stored in finished goods until the time period when the products are sold. At that time, the product costs are transferred from finished goods to cost of goods sold, which is an expense of the period when the sale is made. (LO 2-5)

Learning Objective 2-6 – Prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold, and an income statement for a manufacturer.

2-24

Learning Objective 2-6. Prepare a schedule of cost goods manufactured, a schedule of cost of goods sold, and an income statement for a manufacturer.

Schedule of Cost of Goods Manufactured (1 of 4)

2-25

Manufacturers generally prepare a schedule of cost of goods manufactured and a schedule of cost of goods sold to summarize the flow of manufacturing costs during an accounting period. Let’s take a look at the schedule of cost of goods manufactured for Comet Computer Corporation. (LO 2-6)

Schedule of Cost of Goods Manufactured (2 of 4)

2-26

Raw materials used in production is calculated by adding raw materials purchases for the period to the beginning raw materials inventory. This is the value of the raw materials that were available for use during the period. The raw materials at the end of the period is subtracted from raw materials available to arrive at the raw materials used in production during the period. (LO 2-6)

Schedule of Cost of Goods Manufactured (3 of 4)

Include all direct labor costs incurred during the current period.

2-27

All direct labor costs incurred during the period are added to raw materials used. (LO 2-6)

2-28

Schedule of Cost of Goods Manufactured (4 of 4)

Costs incurred during the period that fall into the category of manufacturing overhead are totaled and then added to raw materials used and direct labor to arrive at total manufacturing costs. (LO 2-6)

Schedule of Cost of Goods Manufactured - WIP

Beginning work-in-process inventory is carried over from the prior period.

Ending work-in-process inventory contains the cost of unfinished goods, and is reported in the current assets section of the balance sheet.

2-29

The value of the work-in-process inventory at the beginning of the period is added to the total manufacturing costs.

The value of the ending work-in-process inventory is subtracted from the subtotal to arrive at cost of goods manufactured for the period. (LO 2-6)

Income Statement for a Manufacturer

2-30

Now let’s look at the income statement for Comet. Remember, cost of goods sold is the expense measured by the cost of the finished goods sold during a period of time. (LO 2-6)

2-31

Schedule of Cost of Goods Sold

The cost of goods sold amount can be obtained from the cost of goods sold schedule. This schedule starts with the finished goods inventory value at the beginning of the period. Cost of goods manufactured from the cost of goods manufactured schedule is added to arrive at cost of goods available for sale. The value of the finished goods inventory at the end of the period is deducted to determine the cost of goods sold amount for the period. (LO 2-6)

Learning Objective 2-7 – Understand the importance of identifying an organization's cost drivers.

2-32

Learning Objective 2-7. Understand the importance of identifying an organization’s cost drivers.

Cost Drivers

2-33

Activities that cause costs to be incurred are called COST DRIVERS:

The phrase different costs for different purposes is often used to convey the notion that different characteristics of costs can be important to understand in a variety of managerial situations. One of the most important cost classifications involves the way a cost changes in relation to changes in the activity of the organization. Activity refers to a measure of the organization’s output of products or services. The activities that cause costs to be incurred are also called cost drivers. (LO 2-7)

Learning Objective 2-8 – Describe the behavior of variable and fixed costs, in total and on a per-unit basis.

2-34

Learning Objective 2-8. Describe the behavior of variable and fixed costs, in total and on a per-unit basis.

Cost Classifications

Cost behavior means how a cost will react to changes in the level of business activity.

Total variable costs change when activity changes.

Total fixed costs remain unchanged when activity changes.

2-35

After identifying costs and cost drivers, management should examine the relationship of various costs to the activities performed. Such a relationship is referred to as cost behavior.

Two types of cost behavior are variable costs and fixed costs. A variable cost changes in total in direct proportion to a change in the level of activity (or cost driver). A fixed cost remains unchanged in total even if the level of activity (or cost driver) varies. (LO 2-8)

Total Variable Cost Example

Your total monthly bill is based on how many movies you watch.

Prime (for-fee) Movies Watched

Total Amazon Prime Bill

2-36

For example, assume you are a new subscriber to Amazon Prime video. If you don’t watch any of the (for-fee) movies, your charges will be zero. (LO 2-8)

Variable Cost Per Unit Example

The cost per movie watched is constant. For example, @ $4.00 per movie.

Movies Watched

Per Movie Charge

2-37

The cost per movie is constant, regardless of the number of movies watched. In our example, the cost is $4.00 per movie no matter if you watch one movie, four movies, or ten movies. (LO 2-8)

Total Fixed Cost Example

Your monthly subscription cost does not change when you watch movies on streaming services such as Netflix that charge a flat monthly fee.

Number of Netflix Movies Watched

Monthly Netflix Charge

2-38

A fixed cost remains unchanged in total as the level of activity (or cost driver) changes. For example, if you are a Netflix subscriber your monthly subscription is the same every month, regardless of the number of movies or shows that you watch. This is classified as a fixed cost. It does not change when activity changes. (LO 2-8)

Graph of Unit Fixed Cost

The average cost per movie decreases as more Netflix movies are watched.

Number of Movies Watched

Monthly Subscription per Movie Watched

2-39

The cost of your monthly subscription can be divided by the number of movies watched to arrive at the average cost per movie. The more movies that you watch, the average cost per movie decreases. (LO 2-8)

Cost Classifications - Summary

2-40

In summary, the total variable cost changes as activity changes. But the cost per unit of variable costs stays the same, regardless of the level of activity. On the other hand, total fixed costs stay the same, regardless of the level of activity. However, the fixed cost per unit changes (in the opposite direction) as the level of activity changes. (LO 2-8)

Cost Management Systems

Objectives

Measure the cost of resources consumed.

Identify and eliminate non–value-added costs.

Determine efficiency and effectiveness of major activities.

Identify and evaluate new activities that can improve performance.

2-41

A cost management system is a planning and control system with four objectives:

Measure the cost of the resources consumed in performing the organization’s significant activities and measure the unused capacity of those resources.

Identify and eliminate non–value-added costs. These are the costs of activities that can be eliminated with no deterioration of product quality, performance, or perceived value.

Determine the efficiency and effectiveness of all major activities performed in the enterprise.

Identify and evaluate new activities that can improve the future performance of the organization.

Notice that the emphasis in a cost management accounting system is on the activities. Using an activity-based costing system to improve the operations of an organization is called activity-based management or ABM. We will learn a lot more about these concepts. (LO 2-8)

Learning Objective 2-9 – Distinguish among direct, indirect, controllable, and uncontrollable costs.

2-42

Learning Objective 2-9. Distinguish among direct, indirect, controllable, and uncontrollable costs.

Direct and Indirect Costs

Direct costs

Costs that can be easily and conveniently traced to a product or department.

Example: cost of paint in the paint department of an automobile assembly plant.

Indirect costs

Costs that must be allocated in order to be assigned to a product or department.

Example: cost of national advertising for an airline is indirect to a particular flight.

2-43

An entity, such as a particular product, service, or department, to which a cost is assigned is called a cost object. A cost that can be traced to a particular cost object is called a direct cost of that cost object. A cost that is not directly traceable to a particular cost object is called an indirect cost of that cost object.

Whether a cost is a direct cost or an indirect cost of a department often depends on which department is under consideration. A cost can be a direct cost of one department or subunit in the organization but an indirect cost of other departments. While the salary of a General Electric Company plant manager is an indirect cost of the plant’s departments, the manager’s salary is a direct cost of the plant. An important objective of a cost management system is to trace as many costs as possible directly to the activities that cause them to be incurred. Sometimes called activity accounting, this process is vital to management’s objective of eliminating non–value-added costs. These are costs of activities that can be eliminated without deterioration of product quality, performance, or perceived value. (LO 2-9)

Controllable and Uncontrollable Costs

A cost that can be significantly influenced by a manager is a controllable cost.

2-44

Another cost classification that can be helpful in cost control indicates the controllability of a cost item by a particular manager. If a manager can control or heavily influence the level of a cost, then that cost is classified as a controllable cost of that manager. Costs that a manager cannot influence significantly are classified as uncontrollable costs of that manager. Many costs are not completely under the control of any individual. In classifying costs as controllable or uncontrollable, managerial accountants generally focus on a manager’s ability to influence costs. The question is not, Who controls the cost? but, Who is in the best position to influence the level of a cost item? This exhibit lists several cost items, along with their typical classification as controllable or uncontrollable. (LO 2-9)

Learning Objective 2-10 – Define and give examples of an opportunity cost, an out-of-pocket cost, a sunk cost, a differential cost, a marginal cost, and an average cost.

2-45

Learning Objective 2-10. Define and give examples of an opportunity cost, an out-of-pocket cost, a sunk cost, a differential cost, a marginal cost, and an average cost.

Opportunity Costs

Example: If you were not attending college, you could be earning $30,000 per year. Your opportunity cost of attending college for one year is $30,000.

2-46

An opportunity cost is defined as the benefit that is sacrificed when the choice of one action precludes taking an alternative course of action. Opportunity costs arise in many business decisions. (LO 2-10)

Out-of-Pocket Costs

Those costs that require the payment of cash or other assets as a result of its incurrence.

These costs should be considered when making decisions.

2-47

From an economic perspective, a dollar of opportunity costs associated with an action should be treated as equivalent to a dollar of out-of-pocket cost. Out-of-pocket costs are those that require the payment of cash or other assets as a result of its incurrence. For example, the out-of-pocket costs associated with a softball order consists of the manufacturing costs required to produce the softballs. In making the decision to accept or reject a softball order, the firm’s management should consider both the out-of-pocket costs and the opportunity cost of the order. (LO 2-10)

Sunk Costs

All costs incurred in the past that cannot be changed by any decision made now or in the future are sunk costs.

Sunk costs should NOT be considered in decisions.

Example: You bought an automobile that cost $22,000 two years ago. The $22,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $22,000 cost.

2-48

Sunk costs are costs that have been incurred in the past. Consequently, they do not affect future costs and cannot be changed by any current or future action. Hence, these costs should NOT be considered and are irrelevant to all future decisions. (LO 2-10)

Differential Costs

Costs that differ between alternatives.

Example: You can earn $1,500 per month in your hometown or $2,000 per month in a nearby city. Your commuting costs are $50 per month in your hometown and $300 per month to the city.

What is your differential cost?

$300 - $50 = $250

2-49

A differential cost is the amount by which the cost differs under two alternative actions. Another word for differential costs are incremental costs. Differential or incremental costs are found in a variety of business decisions. (LO 2-10)

Marginal Costs and Average Costs

The extra cost incurred to produce one additional unit.

The total cost to produce a quantity divided by the quantity produced.

Marginal and average costs are largely a function of cost behavior – variable and fixed costs.

2-50

A special case of the differential-cost concept is the marginal cost, which is the extra cost incurred when one additional unit is produced. Marginal costs typically differ across different ranges of production quantities because the efficiency of the production process changes. The average cost per unit is the total cost, for whatever quantity is manufactured. Marginal costs and average costs arise in a variety of economic situations. (LO 2-10)

Costs and Benefits of Information

Costs

Benefits

More information does not mean more benefits if information overload results.

2-51

Many different cost concepts have been explored in this chapter. An important task for managers is to weigh the benefits of providing information against the costs of generating, communicating, and using that information. When managers receive more data than they can utilize effectively, information overload occurs. In deciding how much and what type of information to provide, managerial accountants should consider these human limitations. (LO 2-10)

End of Chapter 2

2-52

Comet Computer Corporation

Schedule of Cost of Goods Manufactured

Raw material used134,980$

Direct labor50,000

Total manufacturing overhead230,000

Total manufacturing costs414,980$

Add: Work-in-process inventory, January 1120

Subtotal415,100$

Deduct: Work-in-process inventory, December 31100

Cost of goods manufactured415,000$

3 Column


		Comet Computer Corporation
		Schedule of Cost of Goods Manufactured
		Raw material used	$ 134,980
		Direct labor	50,000
		Total manufacturing overhead	230,000
		Total manufacturing costs	$ 414,980
		Add: Work-in-process inventory, January 1	120
		Subtotal	$ 415,100
		Deduct: Work-in-process inventory, December 31	100
		Cost of goods manufactured	$ 415,000

Page &P

Computation of Cost of Raw Material Used

Raw-material inventory, January 1 6,000$

Add: Purchases of raw materials134,000

Raw material available for use140,000

Deduct: Raw material inventory, December 315,020

Raw material used134,980$

3 Column


		Comet Computer Corporation
		Schedule of Cost of Goods Manufactured
		Raw material used	$ 134,980
		Direct labor	50,000
		Total manufacturing overhead	230,000
		Total manufacturing costs	$ 414,980
		Add: Work-in-process inventory, January 1	120
		Subtotal	$ 415,100
		Deduct: Work-in-process inventory, December 31	100
		Cost of goods manufactured	$ 415,000

Page &P

3 Column


		Computation of Cost of Raw Material Used
		Raw-material inventory, January 1	$ 6,000
		Add: Purchases of raw materials	134,000
		Raw material available for use	140,000
		Deduct: Raw material inventory, December 31	5,020
		Raw material used	$ 134,980

Page &P

3 Column


		Comet Computer Corporation
		Schedule of Cost of Goods Manufactured
		Raw material used	$ 134,980
		Direct labor	50,000
		Total manufacturing overhead	230,000
		Total manufacturing costs	$ 414,980
		Add: Work-in-process inventory, January 1	120
		Subtotal	$ 415,100
		Deduct: Work-in-process inventory, December 31	100
		Cost of goods manufactured	$ 415,000

Page &P

Computation of Total Manufacturing Overhead

Indirect material10,000$

Indirect labor40,000

Depreciation on factory90,000

Depreciation on equipment70,000

Utilities15,000

Insurance5,000

Total manufacturing overhead230,000$

3 Column


		Comet Computer Corporation
		Schedule of Cost of Goods Manufactured
		Raw material used	$ 134,980
		Direct labor	50,000
		Total manufacturing overhead	230,000
		Total manufacturing costs	$ 414,980
		Add: Work-in-process inventory, January 1	120
		Subtotal	$ 415,100
		Deduct: Work-in-process inventory, December 31	100
		Cost of goods manufactured	$ 415,000

Page &P

3 Column


	Computation of Total Manufacturing Overhead
	Indirect material	$ 10,000
	Indirect labor	40,000
	Depreciation on factory	90,000
	Depreciation on equipment	70,000
	Utilities	15,000
	Insurance	5,000
	Total manufacturing overhead	$ 230,000

Page &P

Comet Computer Corporation

Schedule of Cost of Goods Manufactured

Raw material used134,980$

Direct labor50,000

Total manufacturing overhead230,000

Total manufacturing costs414,980$

Add: Work-in-process inventory, January 1120

Subtotal415,100$

Deduct: Work-in-process inventory, December 31100

Cost of goods manufactured415,000$

3 Column


		Comet Computer Corporation
		Schedule of Cost of Goods Manufactured
		Raw material used	$ 134,980
		Direct labor	50,000
		Total manufacturing overhead	230,000
		Total manufacturing costs	$ 414,980
		Add: Work-in-process inventory, January 1	120
		Subtotal	$ 415,100
		Deduct: Work-in-process inventory, December 31	100
		Cost of goods manufactured	$ 415,000

Page &P

Comet Computer Corporation

Income Statement

For the Year Ended December 31, 20X2

Sales revenue700,000$

Less: Cost of goods sold415,010

Gross margin284,990$

Selling and administrative expenses174,490

Income before taxes110,500$

Income tax expense30,000

Net income80,500$

3 Column


		Comet Computer Corporation
		Income Statement
		For the Year Ended December 31, 20X2
		Sales revenue	$ 700,000
		Less: Cost of goods sold	415,010
		Gross margin	$ 284,990
		Selling and administrative expenses	174,490
		Income before taxes	$ 110,500
		Income tax expense	30,000
		Net income	$ 80,500

Page &P

Comet Computer Corporation

Schedule of Cost of Goods Sold

For the Year Ended December 31, 20X2

Finished-goods inventory, Jan. 1200$

Add: Cost of goods manufactured415,000

Cost of goods available for sale415,200

Deduct Finished-goods inventory, Dec. 31190

Cost of goods sold415,010$

3 Column


		Comet Computer Corporation
		Income Statement
		For the Year Ended December 31, 20X2
		Sales revenue	$ 700,000
		Less: Cost of goods sold	415,010
		Gross margin	$ 284,990
		Selling and administrative expenses	174,490
		Income before taxes	$ 110,500
		Income tax expense	30,000
		Net income	$ 80,500

Page &P

3 Column


		Comet Computer Corporation
		Schedule of Cost of Goods Sold
		For the Year Ended December 31, 20X2
		Finished-goods inventory, Jan. 1	$ 200
		Add: Cost of goods manufactured	415,000
		Cost of goods available for sale	415,200
		Deduct Finished-goods inventory, Dec. 31	190
		Cost of goods sold	$ 415,010

Page &P

Cost Driver Examples Activity Cost Driver

Machining operations Machine hours Setup Setup hours Production scheduling Manufacturing orders Inspection Pieces inspected Purchasing Purchase orders Shop order handling Shop orders Valve assembly support Customer requisitions

Cost Driver Examples

Activity Cost Driver

Machining operationsMachine hours

Setup Setup hours

Production schedulingManufacturing orders

Inspection Pieces inspected

Purchasing Purchase orders

Shop order handlingShop orders

Valve assembly supportCustomer requisitions

Sheet1


		Cost Driver Examples
		Activity		Cost Driver
		Machining operations		Machine hours
		Setup		Setup hours
		Production scheduling		Manufacturing orders
		Inspection		Pieces inspected
		Purchasing		Purchase orders
		Shop order handling		Shop orders
		Valve assembly support		Customer requisitions

Page &P

Sheet2

Page &P

Sheet3

Page &P

Sheet4

Page &P

Sheet5

Page &P

Sheet6

Page &P

Sheet7

Page &P

Sheet8

Page &P

Sheet9

Page &P

Sheet10

Page &P

Sheet11

Page &P

Sheet12

Page &P

Sheet13

Page &P

Sheet14

Page &P

Sheet15

Page &P

Sheet16

Page &P

Summary of Variable and Fixed Cost Behavior Cost In Total Per Unit

Total variable cost changes Variable cost per unit Variable as activity level changes. remains the same over

wide ranges of activity.

Total fixed cost remains Fixed cost per unit Fixed the same even when the goes down as activity

activity level changes. level goes up.

Summary of Variable and Fixed Cost Behavior

Cost In Total Per Unit

Total variable cost changesVariable cost per unit

Variableas activity level changes.remains the same over

wide ranges of activity.

Total fixed cost remainsFixed cost per unit

Fixedthe same even when thegoes down as activity

activity level changes. level goes up.

Sheet1


Summary of Variable and Fixed Cost Behavior
Cost	In Total	Per Unit
	Total variable cost changes	Variable cost per unit
Variable	as activity level changes.	remains the same over
		wide ranges of activity.
	Total fixed cost remains	Fixed cost per unit
Fixed	the same even when the	goes down as activity
	activity level changes.	level goes up.

Page &P

Sheet2

Page &P

Sheet3

Page &P

Sheet4

Page &P

Sheet5

Page &P

Sheet6

Page &P

Sheet7

Page &P

Sheet8

Page &P

Sheet9

Page &P

Sheet10

Page &P

Sheet11

Page &P

Sheet12

Page &P

Sheet13

Page &P

Sheet14

Page &P

Sheet15

Page &P

Sheet16

Page &P