Escolar Documentos
Profissional Documentos
Cultura Documentos
Cost Concepts
Chapter 01
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Learning Objective 1
Identify and give
examples of each of the
three basic
manufacturing cost
categories.
1-2
Classifications of Manufacturing
Costs
Direct
Direct
Materials
Materials
Direct
Direct
Labor
Labor
Manufacturing
Manufacturing
Overhead
Overhead
The Product
1-3
Direct Materials
Raw materials that become an integral
part of the product and that can be
conveniently traced directly to it.
Example:
Example: A
A radio
radio installed
installed in
in an
an automobile
automobile
1-4
Direct Labor
Those labor costs that can be easily
traced to individual units of product.
Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly workers
workers
1-5
Manufacturing Overhead
Manufacturing costs that cannot be easily
traced directly to specific units produced.
Examples:
Examples: Indirect
Indirect materials
materials and
and indirect
indirect labor
labor
1-6
Nonmanufacturing Costs
Administrative
Costs
All executive,
organizational, and
clerical costs.
1-7
Learning Objective 2
Distinguish between
product costs and
period costs and give
examples of each.
1-8
Expense
Sale
Balance
Sheet
Income
Statement
Income
Statement
1-9
Quick Check
Which of the following costs would be considered
a period rather than a product cost in a
manufacturing company?
A.
1-10
Quick Check
Which of the following costs would be considered
a period rather than a product cost in a
manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production
facility.
E. Sales commissions.
1-11
Classifications of Costs
Manufacturing costs are often
classified as follows:
Direct
Material
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
1-12
Learning Objective 3
Understand cost
behavior patterns
including variable costs,
fixed costs, and mixed
costs.
1-13
1-14
Variable Cost
Units
produced
A measure of what
causes the
incurrence of a
variable cost
Miles
driven
Laborhours
1-17
Fixed Cost
1-18
Within the monthly contract allotment, the average fixed cost per
cell phone call made decreases as more calls are made.
Discretionary
Examples
Examples
Depreciation on Buildings
and Equipment and Real
Estate Taxes
Advertising and
Research and
Development
1-20
Total Cost
Economists
Curvilinear Cost
Function
Relevant
Range
A
A straight
straight line
line
closely
closely
approximates
approximates aa
curvilinear
curvilinear
variable
variable cost
cost
line
line within
within the
the
relevant
relevant range.
range.
Accountants Straight-Line
Approximation (constant
unit variable cost)
Activity
1-21
1-22
60
Range
30
0
The
The relevant
relevant range
range
of
of activity
activity for
for aa fixed
fixed
cost
cost is
is the
the range
range of
of
activity
activity over
over which
which
the
the graph
graph of
of the
the
cost
cost is
is flat.
flat.
1,000
2,000
3,000
Rented Area (Square Feet)
1-23
1-24
Quick Check
Which of the following costs would be variable with respect
to the number of cones sold at a Baskins & Robbins shop?
(There may be more than one correct answer.)
A. The cost of lighting the store.
B. The wages of the store manager.
C. The cost of ice cream.
D. The cost of napkins for customers.
1-25
Quick Check
Which of the following costs would be variable with respect
to the number of cones sold at a Baskins & Robbins shop?
(There may be more than one correct answer.)
A. The cost of lighting the store.
B. The wages of the store manager.
C. The cost of ice cream.
D. The cost of napkins for customers.
1-26
Mixed Costs
(also called semivariable costs)
A
A mixed
mixed cost
cost contains
contains both
both variable
variable and
and fixed
fixed
elements.
elements. Consider
Consider the
the example
example of
of utility
utility cost.
cost.
Total Utility Cost
al
t
o
T
d
e
x
mi
t
s
o
c
Variable
Cost per KW
Fixed Monthly
Utility Charge
1-27
Mixed Costs
al
t
o
T
d
e
x
mi
t
s
o
c
Variable
Cost per KW
Fixed Monthly
Utility Charge
1-28
1-29
Learning Objective 4
Analyze a mixed cost
using a scattergraph plot
and the high-low
method.
1-31
1-32
X
Hours of Maintenance
1-33
1-35
Y = $4,700 + $6.00X
1-36
Quick Check
Sales salaries and commissions are $10,000
when 80,000 units are sold, and $14,000 when
120,000 units are sold. Using the high-low
method, what is the variable portion of sales
salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
1-37
Quick Check
1-38
Quick Check
Sales
Sales salaries
salaries and
and commissions
commissions are
are $10,000
$10,000
when
when 80,000
80,000 units
units are
are sold,
sold, and
and $14,000
$14,000 when
when
120,000
120,000 units
units are
are sold.
sold. Using
Using the
the high-low
high-low
method,
method, what
what is
is the
the fixed
fixed portion
portion of
of sales
sales
salaries
salaries and
and commissions?
commissions?
a.
a. $$ 2,000
2,000
b.
b. $$ 4,000
4,000
c.
c. $10,000
$10,000
d.
d. $12,000
$12,000
1-39
Quick Check
Sales
Sales salaries
salaries and
and commissions
commissions are
are $10,000
$10,000
when
when 80,000
80,000 units
units are
are sold,
sold, and
and $14,000
$14,000 when
when
120,000
120,000 units
units are
are sold.
sold. Using
Using the
the high-low
high-low
method,
method, what
what is
is the
the fixed
fixed portion
portion of
of sales
sales
salaries
salaries and
and commissions?
commissions?
a.
a. $$ 2,000
2,000
b.
b. $$ 4,000
4,000
c.
c. $10,000
$10,000
d.
d. $12,000
$12,000
1-40
1-41
Learning Objective 5
Prepare income
statements for a
merchandising company
using the traditional and
contribution formats.
1-44
Learning Objective 6
Understand the
differences between
direct and indirect costs.
1-47
Indirect costs
Examples: direct
material and direct
labor
Example:
manufacturing
overhead
1-48
Learning Objective 7
Understand cost
classifications used in
making decisions:
differential costs,
opportunity costs, and
sunk costs.
1-49
1-50
1-51
Opportunity Cost
The potential benefit that is given
up when one alternative is
selected over another.
Example: If you were
not attending college,
you could be earning
$15,000 per year.
Your opportunity cost
of attending college for
one year is $15,000.
1-52
Sunk Costs
Sunk costs have already been incurred and cannot be
changed now or in the future. These costs should be
ignored when making decisions.
Example: Suppose you had purchased gold for
$400 an ounce, but now it is selling for $250 an
ounce. Should you wait for the gold to reach $400 an
ounce before selling it? You may say, Yes even
though the $400 purchase is a sunk cost.
1-53
Quick Check
Suppose you are trying to decide whether to drive or take
the train to Portland to attend a concert. You have ample
cash to do either, but you dont want to waste money
needlessly. Is the cost of the train ticket relevant in this
decision? In other words, should the cost of the train ticket
affect the decision of whether you drive or take the train to
Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.
1-54
Quick Check
Suppose you are trying to decide whether to drive or take
the train to Portland to attend a concert. You have ample
cash to do either, but you dont want to waste money
needlessly. Is the cost of the train ticket relevant in this
decision? In other words, should the cost of the train ticket
affect the decision of whether you drive or take the train to
Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.
1-55
Quick Check
Suppose you are trying to decide whether to drive or take
the train to Portland to attend a concert. You have ample
cash to do either, but you dont want to waste money
needlessly. Is the annual cost of licensing your car
relevant in this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.
1-56
Quick Check
Suppose you are trying to decide whether to drive or take
the train to Portland to attend a concert. You have ample
cash to do either, but you dont want to waste money
needlessly. Is the annual cost of licensing your car
relevant in this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.
1-57
Quick Check
Suppose that your car could be sold now for $5,000. Is
this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.
1-58
Quick Check
Suppose that your car could be sold now for $5,000. Is
this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.
1-59
Predicting Cost
Behavior
Assigning Costs
to Cost Objects
Making Business
Decisions
1-60
End of Chapter 01
1-61