2-1

2-2

The
branch
of
accounting
that
deals
with
calculation of cost
per
unit,
management of cost
per unit and control
of cost per unit is
called
cost
accounting

2-3

2-4

Identify and give

examples of each of
the three basic
manufacturing cost
categories.

2-5

Direct
Direct
Materials
Materials

Direct
Direct
Labor
Labor

The Product

Manufacturing
Manufacturing
Overhead
Overhead or
or FOH
FOH

2-6

Example:
Example: Tyres
Tyres in
in an
an automobile
automobile

2-7

Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly workers
workers

2-8

Examples:
Examples: Indirect
Indirect materials
materials and
and indirect
indirect labor
labor

2-9

Administrative
Costs

All executive,
organizational, and
clerical costs.

2-10

What is difference
between product
costs and period
costs and give
examples of each.

2-11

Inventory

Cost of Good Sold

Expense

Sale

Balance
Sheet

Income
Statement

Income
Statement

2-12

2-13

2-14

Direct
Material

Direct
Labor

Prime
Cost

Manufacturing
Overhead

Conversion
Cost

2-15

Understand cost
behavior patterns
including variable
costs, fixed costs,
and mixed costs.

2-16

Total Texting Bill

2-17

Number of Texts Sent

Cost Per Text Sent

2-18

Number of Texts Sent

Monthly Cell Phone

Contract Fee

2-19

Number of Minutes Used

Within Monthly Plan

Monthly Cell Phone

Contract Fee

2-20

Number of Minutes Used

Within Monthly Plan

2-21

For example, assume office space is available at

a rental rate of $30,000 per year in increments of
1,000 square feet.

Rent Cost in Thousands

of Dollars

2-22

90
Relevant

60

Range

30
0

1,000
2,000
3,000
Rented Area (Square Feet)

2-23

2-24

2-25

2-26

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

Activity (Kilowatt )

Fixed Monthly
Utility Charge

2-27

Total Utility Cost

al
t
o
T

d
e
x
mi

t
s
o
c
Variable
Cost per KW

Activity (Kilowatt Hours)

Fixed Monthly
Utility Charge

2-28

IfIf your
your fixed
fixed monthly
monthly utility
utility charge
charge is
is $40,
$40, your
your
variable
variable cost
cost is
is $0.03
$0.03 per
per kilowatt
kilowatt and
and your
your monthly
monthly
activity
activity level
level is
is 2,000
2,000 kilowatt
kilowatt ,, what
what is
is the
the amount
amount of
of
your
your utility
utility bill?
bill?

2-29

Analyze a mixed cost

using a scattergraph
plot and the highlow method.

2-30

2-31

Plot
Plot the
the data
data points
points on
on aa graph
graph
(Total
(Total Cost
Cost Y
Y vs.
vs. Activity
Activity X).
X).

Total Maintenance
Cost

X
Hours of

2-32

The variable cost

per hour of
maintenance is
equal to the change
in cost divided by
the change in hours.
$2,400
= $6.00/hour
400

2-33

Total Fixed Cost = Total Cost Total Variable Cost

Total Fixed Cost = $9,800 ($6/hour 850 hours)
Total Fixed Cost = $9,800 $5,100
Total Fixed Cost = $4,700

2-34

The Cost Equation for Maintenance

Y = $4,700 + $6.00X

2-35

2-36

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

2-37

2-38

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

2-39

Prepare income
statements for a
merchandising
company using the
traditional and
contribution
formats.

2-40

2-41

Understand the differences

between direct and indirect
costs.

2-42

Direct costs

Indirect costs

Costs that can be

easily traced to a
unit of product

Costs that cannot

be easily traced to
a unit of product

Examples: direct
material and direct
labor

Example:
manufacturing
overhead

2-43

Understand cost
classifications used
in making decisions:
differential costs,
opportunity costs,
and sunk costs.

2-44

Example: You have a job paying $1,500 per month in

your hometown. You have a job offer in a neighboring
city that pays $2,000 per month. The travelling cost to
the city is $300 per month.

Differential revenue is:

$2,000 $1,500 = $500

Differential cost is:

$300

2-45

Example: If you were

not attending cost
accounting class,
you could be earning
$25,00 per semester.
Your opportunity cost
of attending accounting
class for one semester
is $25,00.

2-46

2-47

2-48

2-49

2-50

2-51

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2-53

Thank You