Vous êtes sur la page 1sur 93

COS

CONCEPTS,
CLASSIFICATIONS AND
COST BEHAVIOR
Group 2

Joel Pre II

Tacy Gonzalez

Cost Elements in
Manufacturing

Cost Classifications for


Predicting Cost Behavior

Product and Period Costs

Analyzing Cost Behavior

The Income Statement

Cost Classifications in
Decision Making

Schedule of Costs

Joel Ulysses S. Pre II


Graduate School of Management
Masters in Business Administration (MBA-TEP)
Pamantasan ng Lungsod ng Maynila

Identify and give examples of each of


the three basic cost elements involved
in the manufacture of a product.

Manufacturing Costs
Direct
Direct
Materials
Materials

Direct
Direct
Labour
Labour

The Product

Manufacturing
Manufacturing
Overhead
Overhead

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

Direct Labour
Those labour 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

Manufacturing Overhead
Manufacturing costs that cannot be traced directly to specific units
produced.

Examples:
Examples: Indirect
Indirect labour
labour and
and indirect
indirect materials
materials
Wages paid to employees
who are not directly
involved in production
work.
Examples: maintenance
workers, janitors and
security guards.

Materials used to support


the production process.
Examples: lubricants and
cleaning supplies used in the
automobile assembly plant.

Classifications of Costs
Manufacturing costs are often
classified as follows:

Direct
Direct
Material
Material

Direct
Direct
Labour
Labour

Prime
Cost

Manufacturing
Manufacturing
Overhead
Overhead

Conversion
Cost

Idle Time
Machine
Breakdowns

Material
Shortages
Power
Failures

The labour costs incurred during


idle time are ordinarily treated as
manufacturing overhead.
Product specific idle time is
treated as direct labour.

Overtime

The overtime premiums for all factory


workers are usually considered to be part of
manufacturing overhead. Product specific
overtime premiums are part of direct
labour.

Employee Benefits
Employee benefits include employment
taxes, medical plans, and pension costs.

Some companies
include all of these
costs in
manufacturing
overhead.

Other companies treat


employee benefit
expenses of direct
labourers as
additional direct
labour costs.

Non-manufacturing Costs
Selling
Costs

Administrative
Costs

Costs necessary to get


the order and deliver
the product.

All executive,
organizational, and
clerical costs.

Distinguish between product costs and


period costs and give examples of
each.

Product Costs Versus Period


Costs
Product costs
include direct
materials, direct
labour, and
manufacturing
overhead.
Cost of Good Sold
Inventory

Period costs include


all selling costs and
administrative costs.

Expense

Sale

Balance
Sheet

Income
Statement

Income
Statement

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.

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.

Comparing Merchandising and


Manufacturing Activities
Merchandisers . . .

Manufacturers . . .

Buy finished goods.


Sell finished goods.

Buy raw materials.


Produce and sell
finished goods.

MegaLoMart

Balance Sheet
Merchandiser
Current assets
Cash
Receivables
Prepaid Expenses
Merchandise Inventory

Manufacturer
Current Assets
Cash
Receivables
Prepaid Expenses
Inventories

Raw Materials
Work in Process
Finished Goods

Balance Sheet
Merchandiser

Manufacturer
Current Assets

Current assets
Cash
Receivables
Prepaid Expenses
Merchandise Inventory

Materials waiting to be
processed.

Cash
Receivables
Prepaid Expenses
Inventories

Raw Materials

Partially complete products some


material, labour, or overhead has
been added.

Work in Process

Completed products awaiting


sale.

Finished Goods

Prepare an income statement including


calculation of the cost of goods sold.

The Income Statement


Cost of goods sold for manufacturers differs
only slightly from cost of goods sold for
merchandisers.
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory
+ Purchases
Goods available
for sale
- Ending
merchandise
inventory
= Cost of goods
sold

$ 14,200
234,150
$ 248,350

(12,100)
$ 236,250

Manufacturing Company
Cost of goods sold:
Beg. finished
goods inv.
+ Cost of goods
manufactured
Goods available
for sale
- Ending
finished goods
inventory
= Cost of goods
sold

$ 14,200
234,150
$248,350

(12,100)
$236,250

Basic Equation for Inventory Accounts

Beginning
balance

Additions
to inventory

Ending
balance

Withdrawals
from
inventory

Quick Check

If your inventory balance at the beginning


of the month was $1,000, you bought $100
during the month, and sold $300 during the
month, what would be the balance at the end
of the month?

A. $1,000.
B. $ 800.
C. $1,200.
D. $ 200.

Quick Check

If your inventory balance at the beginning


of the month was $1,000, you bought $100
during the month, and sold $300 during the
month, what would be the balance at the end
of the month?

A. $1,000. $1,000 + $100 = $1,100


$1,100 - $300 = $800
B. $ 800.
C. $1,200.
D. $ 200.

Prepare a schedule of cost of goods


manufactured.

Schedule of Cost of Goods


Manufactured
Calculates the cost of raw
material, direct labour and
manufacturing overhead used
in production.

Calculates the manufacturing


costs associated with goods
that were finished during the
period.

Product Cost Flows

As
As items
items are
are removed
removed from
from raw
raw
materials
materialsinventory
inventoryand
andplaced
placedinto
into
the
the production
production process,
process,they
theyare
are
called
calleddirect
direct materials.
materials.

Product Cost Flows


Conversion
Conversion
costs
costs are
are costs
costs
incurred
incurred to
to
convert
convert the
the
direct
direct material
material
into
into aafinished
finished
product.
product.

Product Cost Flows

All
Allmanufacturing
manufacturingcosts
costsincurred
incurred
during
during the
theperiod
periodare
areadded
addedto
tothe
the
beginning
beginning balance
balanceof
of work
workin
in
process.
process.

Product Cost Flows

Costs
Costsassociated
associated with
with the
the goods
goods that
that
are
are completed
completed during
during the
theperiod
periodare
are
transferred
transferredto
tofinished
finished goods
goods
inventory.
inventory.

Product Cost Flows


Work
In Process

+
=

Beginning work in
process inventory
Manufacturing costs
for the period
Total work in process
for the period
Ending work in
process inventory
Cost of goods
manufactured

Finished Goods
Beginning finished
goods inventory
+ Cost of goods
manufactured
= Cost of goods
available for sale
- Ending finished
goods inventory
Cost of goods
sold

Manufacturing Cost Flows


Costs

Balance Sheet
Inventories

Material Purchases

Raw Materials

Direct Labour

Work in
Process

Manufacturing
Overhead

Selling and
Administrative

Finished
Goods

Period Costs

Income
Statement
Expenses

Cost of
Goods
Sold
Selling and
Administrative

Quick Check

Beginning raw materials inventory was


$32,000. During the month, $276,000 of raw
material was purchased. A count at the end of
the month revealed that $28,000 of raw
material was still present. What is the cost of
direct material used?

A.
B.
C.
D.

$276,000
$272,000
$280,000
$ 2,000

Quick Check

Beginning raw materials inventory was


$32,000. During the month, $276,000 of raw
material was purchased. A count at the end of
the month revealed that $28,000 of raw
material was still present. What is the cost of
direct material used?

A.
B.
C.
D.

$276,000
$272,000
$280,000
$ 2,000

+
=

Beg. raw materials


Raw materials
purchased
Raw materials available
for use in production
Ending raw materials
inventory
Raw materials used
in production

32,000
276,000

$ 308,000
28,000
$ 280,000

Quick Check

Direct materials used in production


totaled $280,000. Direct labour was
$375,000 and factory overhead was
$180,000. What were total manufacturing
costs incurred for the month?

A.
B.
C.
D.

$555,000
$835,000
$655,000
Cannot be determined.

Quick Check

Direct materials used in production totaled $280,000. Direct


labour was $375,000 and factory overhead was $180,000. What
were total manufacturing costs incurred for the month?

A.
B.
C.
D.

$555,000
$835,000
$655,000
Cannot be determined.

Quick Check

Beginning work in process was $125,000. Manufacturing


costs incurred for the month were $835,000. There were
$200,000 of partially finished goods remaining in work in
process inventory at the end of the month. What was the cost
of goods manufactured during the month?

A.
B.
C.
D.

$1,160,000
$ 910,000
$ 760,000
Cannot be determined.

Quick Check

Beginning work in process was $125,000. Manufacturing


costs incurred for the month were $835,000. There were
$200,000 of partially finished goods remaining in work in
process inventory at the end of the month. What was the cost
of goods manufactured during the month?

A.
B.
C.
D.

$1,160,000
$ 910,000
$ 760,000
Cannot be determined.
+
=

Beginning work in
process inventory
Mfg. costs incurred
for the period
Total work in process
during the period
Ending work in
process inventory
Cost of goods
manufactured

$ 125,000
835,000
$ 960,000
200,000
$ 760,000

Quick Check

Beginning finished goods inventory was $130,000. The cost of


goods manufactured for the month was $760,000. And the ending
finished goods inventory was $150,000. What was the cost of
goods sold for the month?

A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000.

Quick Check

Beginning finished goods inventory was $130,000. The cost of


goods manufactured for the month was $760,000. And the ending
finished goods inventory was $150,000. What was the cost of
goods sold for the month?

$130,000 + $760,000 = $890,000


A. $ 20,000.$890,000 - $150,000 = $740,000

B. $740,000.
C. $780,000.
D. $760,000.

Ma. Exaltation A. Gonzalez


Graduate School of Management
Masters in Business Administration
(MBA-TEP)
Pamantasan ng Lungsod ng Maynila

Cost Classifications for


Predicting Cost Behavior

Cost Classifications for


Predicting Cost Behavior
Cost
Classification by
Behavior
Variable

Fixed

Mixed

True Variable

Commited

Variable

Step-Variable

Discretionary

Fixed

VARIABLE COST is a cost that varies, in


total, in direct proportion to changes in
the level of activity.

Variable Cost Illustration


Number of
Cakes
Made

Cost per
Kilo of
Flour

1
7

200.00
200.00

15

200.00

Total
Variable
Cost Flour
200.00

1,400.00

3,000.00

Table 2. Examples of Variable Costs


Type
Organization
Merchandising
company
Manufacturing
company

Service company
Any

of Normally variable with respect


to volume of output
Cost of goods (merchandise) sold
Direct materials
Direct labor*
Variable elements of
manufacturing overhead (indirect
materials, supplies, power)
Travel
Supplies
Sales commission
Shipping cost

Chevy Volt
Price starts at $40,140.00
Fully electric = 154 km /
gallon-e
Volt battery (direct material)

Number
of Volts

Cost per
Battery

1
50

$7,000
$7,000

75

$7,000

Total
Variable
Cost Battery
$7,000
$350,00
0
$525,00
0

Mabuhay Travel
Island day trips
Package starts at PhP 2,500/person
Catered meals

Number of Tourists

Cost per Tourist

50

650.00

Total Variable Cost


- Meals
32,500.00

150

650.00

97,500.00

700

650.00

455,000.00

FIXED COST is a cost that remains


constant regardless of changes in the
level of activity.
Figure 1. Variable and Fixed Cost Behavior
PhP30,000.00
PhP25,000.00
PhP20,000.00
PhP15,000.00
PhP10,000.00
Cost of Fuel
PhP5,000.00

Cost of Vehicle Lease

PhP0.00

Miles Travelled

The ACTIVITY BASE is a measure of


whatever causes the incurrence of
variable cost. It is also referred to as a
COST DRIVER.

Figure 1. Variable and Fixed Cost Behavior

PhP30,000.00
PhP25,000.00
PhP20,000.00
PhP15,000.00
PhP10,000.00
Cost of Fuel
PhP5,000.00

Cost of Vehicle Lease

PhP0.00

Miles Travelled

Mayo Clinic
Rents a machine to test blood
samples for the presence of
leukemia cells
Fixed Cost = $8,000/month

Monthly Rental

Number of Tests

Average Cost
per Test

$ 8,000.00

10

$800

$ 8,000.00

500

$16

$ 8,000.00

2,000

$4

Intel
Each new plant can produce
1.25 million chips per day
375 million chips a year
Volume output = 2.5x faster in
new plants

AVERAGE FIXED COST PER UNIT OF OUTPUT


ECONOMIES OF SCALE

TYPE OF VARIABLE COSTS


TRUE VARIABLE COSTS, like direct
materials is a true variable cost
because the amount used during a
period will vary in direct proportion to
the level of production activity.
Moreover, any amounts purchased but
not used can be stored and carried
forward to the next period as
STEP
VARIABLE COSTS are the cost of a
inventory.
resource that is obtainable only in
large chunks and that increases or
decreases only in response to fairly
wide changes in activity.

Call Center XYZ


Telco costs = true variable
Shift managers = step-variable

350

True Variable versus Step-Variable Costs

300

250

200

150

100

Call Minutes in
Thousands

50
0

2
1
0

Volume of Calls

Industry Study:
2003
7,629
companies
20-year period

1% increase in Sales = 0.55% increase in


Sales/Administrative costs
1% decrease in Sales = 0.35% decrease in

TYPE OF FIXED COSTS


COMMITTED FIXED COSTS are those
costs that cannot be significantly
altered or reduced even for short
periods of time without making
fundamental changes. You are lockeddown to these costs, at least for the
considerable term that can sometimes
run to a few years.
DISCRETIONARY FIXED COSTS are
sometimes called managed fixed
costs. They usually arise from annual
decisions made by management on
certain fixed costs items.

Committed Cost:
Equipment
a company buys a
machine for $40,000
maintenance contract for
$2,000 in each of the
next three years

Committed Cost :
Property
A multi-year property lease
agreement is also a
committed cost for the full
term of the lease, since it is
extremely difficult to
terminate a lease
agreement.

Discretionary
Advertising
Research
Management Development
Programs

Labor Cost: Variable or Fixed?


Type of Industry
Country
Regulations
Labor Contracts
Union
Commitments
Company Decision

Fixed Costs and the


Relevant Range
The RELEVANT RANGE is the range of
activity within which the assumptions
about the variable and fixed costs are
valid
Fixed Vehicle Lease Cost and Its Relevant Range
$3,000.00
$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$0.00

Fixed Costs versus Step


Variable Cost
7

. True Variable versus Step-Variable Costs

6
5
4
3
2
1
0

Volume of Calls

Fixed Vehicle Lease Cost and Its Relevant Range


$3,000.00
$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$0.00

Type of
Industry
Ease of
Change in
Response
Historical
Accounting
Practice

Per Unit
Cost

Fixed

Variable

MIXED COST : a mix between fixed and


variable costs.

Mixed Cost = Fixed Cost + ((Variable Cost Per Unit)(


Number of Units))
Mixed Cost = Fixed Cost + Total Variable Cost

Mabuhay Travel and Tours


Annual License paid
to DOT
41,000.00
Travel fees to DOT
paid per trip
375.00
Number of Trips
Taken
400
MIXED COST = 41,000 + ((375)(400))
MIXED COST = 191,000

Training Cost in a Merchant Company


Figure
4. Training Cost as Mixed Cost
$50,000.00

Regulatory Training:
PCI Training from the
Payment Card
Industry Security
Standards Council
Other Skills Training
Initiatives

$45,000.00
$40,000.00
$35,000.00
$30,000.00
$25,000.00
$20,000.00
$15,000.00
$10,000.00
$5,000.00

Up-Skill Training

$0.00

MIXED COST = Regulatory Training Cost + ((Skills Training)


(Number of Training))

Cost Classifications for


Predicting Cost Behavior
Cost
Classification by
Behavior
Variable

Fixed

Mixed

True Variable

Commited

Variable

Step-Variable

Discretionary

Fixed

Analysis for Cost


Behavior

Analysis for Cost


Behavior
Linearity Assumption
High-Low Method
Scattergraph Plot
Method
Least Squares
Regression

LINEARITY
ASSUMPTION:
increases, cost increases.

as

activity

Linearity of Variable Costs

Cost - DEPENDENT (y-axis)

Volume (units) - INDEPENDENT (x-axis)

Linear versus Non-Linear


Linearity of Variable Costs

Cost - DEPENDENT (y-axis)

Volume (units) - INDEPENDENT (x-axis)

HIGH-LOW METHOD: using the highest and


lowest activity points to determine mixed
cost behavior.
Cost and Hours of Operation, Larsons Company

Month
January
February
March
April
May
June

Cost
$1,000
$1,250
$2,250
$2500
$3750
?

Hours
100
200
300
400
500
350

High-Low Method

Month
January
February
March
April
May
June

Cost
$1,000
$1,250
$2,250
$2500
$3750
?

Hours
100
200
300
400
500
350

High-Low Method
Variable rate = (3750 1000) / (500 100)
= 2750/400
= 6.875
Fixed cost
= 3750 (6.875 x 500)
= 312.50
June cost = 312.50 + (6.875 x 350)
= 2718.75
Month
January
February
March
April
May
June

Cost
$1,000
$1,250
$2,250
$2500
$3750
?

Hours
100
200
300
400
500
350

THE SCATTERGRAPH PLOT:


account all data sets available
them in a scattergraph.

taking into
and plotting

ost and Hours of Operation, Larsons Company

Month
January
February
March
April
May
June

Cost
$1,000
$1,250
$2,250
$2500
$3750
?

Hours
100
200
300
400
500
350

Scattergraph for Larson Company


$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
50

100 150 200 250 300 350 400 450 500 550

Scattergraph Plot
Variable rate = (2250 1000) / (300 100)
= 1250/200
= 6.25
Fixed cost
= 2250 (6.25x 300)
= 375
June cost = 375 + (6.25 x 350)
= 2562.50
Month
January
February
March
April
May
June

Cost
$1,000
$1,250
$2,250
$2500
$3750
?

Hours
100
200
300
400
500
350

LEAST SQUARES REGRESSION


defining the best-fit line

METHOD:

$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0

50

100

150

200

250

300

350

400

450

500

550

Least Squares Regression


Method

Comparing Approaches

Y = a + bx
Total Cost = Fixed Cost + (Variable
Rate*Activity Level)

High - Low Scatterplot Regression


Fixed Cost
312.75
375
125
Variable
6.875
6.25
6.75
Rate
Total
Cost $2718.75
$2562.50
$2487.5
(June)
0

Cost Classifications for


Decision Making

Cost Classifications for


Decision Making
Differential Cost &
Revenue
Opportunity Cost
Sunk Cost

DIFFERENTIAL COST: the difference in cost


between two alternatives
INCREMENTAL COST
DECREMENTAL COST

DIFFERENTIAL REVENUE: the difference in


REVENUE between two alternatives

McDonalds

Health implications of menu


Hydrogenated oil to soybean oil
Cut trans-fat by 48%
Soybean oil only lasts half-as-long
$ 186 to $571 per week
DIFFERENTIAL COST = $260 M per
year

Natures Way
Incremental revenue = $100,000
Incremental cost = $85,000
Net Income difference = $15,000

ITEMS
REVENUE
Cost of Goods Sold (V)
Advertising (F)
Commission (V)
Warehouse
depreciation (F)
Other Expenses (F)
TOTAL EXPENSES
NET OPERATING
INCOME

RETAILER

SALES REP

$700,000
350,000
80,000
0
50,000

$800,000
400,000
45,000
40,000
80,000

DIFF
COST/REV
$100,000
50,000
(35,000)
40,000
30,000

60,000
540,000
$160,000

60,000
625,000
$175,000

0
85,000
$15,000

Corporate Angel
Network
Cancer patients with specialized
treatment
Corporate Jets flying with empty
seats
No tax breaks for participating
companies
ZERO INCREMENTAL COSTS

OPPORTUNITY COST: the potential benefit


that is given up when one alternative is
selected.
Rarely seen in accounting records,
but managers use these figures all
the time to make decisions.

New
Store

New
Realty
Project

Choosing one over the other means that the other option is a
lost opportunity

Team
Building

Continue
Work

Choosing one over the other means that the other option is a
lost opportunity

SUNK COST:
costs that stay the same
regardless of the available alternatives or
the decision made

Need to ignore sunk costs in making


current and future decisions.

$100
Ticke
t
$50
Ticke
t

Source: Pricing and the Psychology of Consumption, Harvard Business


Review, September 2002, pp. 92 -93.

Throwing good money


after bad.

Vous aimerez peut-être aussi