Académique Documents
Professionnel Documents
Culture Documents
for Engineers
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Virtual Trading Report
Extra credit – a few more points for you
Things to highlight:
Your trading strategy
- The companies you traded and basic financial information
about them, How did you choose them, Why did you choose
them, valuation criteria employed.
Your performance
- Track your trading: stocks bought and sold and your thinking
behind trading decisions made.
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Recap: Financial Accounting – Financial Statements
Financial statements are a snapshot of a firm’s activities for a specific period
of time. Financial Statements are how a firm is “valued” to the public.
Balance Sheet – The Accounting Equation
Is a summary of firm’s assets, liabilities, and shareholder equity.
Equation: Assets = Liabilities + Shareholder’s (owner’s) equity
Income Statement
Presents the results of operating activities of a firm.
Equation: Revenues – Expense = Net Income (profit)
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COST ACCOUNTING
Accounting For Transactions
Accounts are the building blocks
Specially labeled “buckets”
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Making Account Entries
Increases in Assets are recorded on the left (debit) side,
decreases on the right (credit).
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T-Account debits and credits
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Example: Start Company with Shs10m
cash
Balances
Shs10,000,000 = $10,000,000
Example: Purchase Land for Shs4,000,000
(Shs2,000,000 Cash, Shs2,000,000 Loan)
Assets = Liabilities + Owner’s Equity
Cash Land
Cash: 2,000,000
Capital: 10,000,000 Land: 2,000,000
Loan: 2,000,000 Equity
Capital: 10,000,000
Loan/Account Payable
Land: 2,000,000
Example: Transaction 2: Pay Shs. 1m on
land debt
Assets = Liabilities + Owner’s Equity
Cash Land
Cash: 2,000,000
Capital: 10,000,000 Land: 2,000,000
Loan: 2,000,000 Equity
Loan: 1,000,000
Capital: 10,000,000
Loan/Account Payable
Cash: 1,000,000 Land: 2,000,000
The Main Objectives of
Managerial/Cost Accounting
Providing managers with information for
decision making and planning.
Assist managers in directing and
controlling operations.
Motivating mangers towards the firms
goals.
Measuring the performance of
managers.
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Cost Accounting Overview
There are no fixed rules governing how a firm should
keep track of costs, although there are many formal
methods available for users.
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Elements of Cost Accounting
Basic Cost Terms and Concepts
Costing Systems
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Elements of Cost Accounting:
Common Cost Terms Defined
Fixed Costs Indirect Cost
Relatively independent of Not traceable to a particular
production rate production unit
Indirect Material - Needed
Variable Costs for production but not
Related to production or optional part of the product (ex.:
projects paper towels)
Indirect Labor
Direct Cost
Direct Material - consumed in Overhead
making a particular product Many other costs such as
Direct Labor marketing, sales etc.
Traceable
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Other Costing Terms
Opportunity Costs Average Cost
Value of alternate Total cost divided by the
activities quantity manufactured
Sunk Costs Cost of Goods Sold
$ already spent Total (sort of) cost of
Differential Costs manufacturing
Difference between two Suspense Accounts
choices Holding area for later
Marginal Costs decisions
Extra cost of producing Expensing and
one additional unit Capitalizing
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Product Cost Accounting-
”Standard Cost”
It is common to use an estimate of cost to establish
pricing
This may come from historical data or engineering estimates
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Product Cost Allocation Example
Product A Product B
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Fixed and Variable Cost Information
to Make Decisions
In Financial Accounting we usually report product costs and
operating period costs:
Sales
-COGS
Material
Labor
Overhead
=Gross Profit
-Operating Expenses
S,G&A
=Pretax Income
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Fixed or Variable Cost
__ Product A Manager’s Salary
___ Rent
___ Product B hourly manufacturing
Fixed Cost – F labor
___ Metal for a car
___ Sales Associates’ wages
___ Engineer’s Computer
___ Production Machinery
Variable Cost - V ___ Utilities
___ Firm’s Accountant’s Salary
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Total Cost Formula
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Internally, a manager needs to know the
effect of expanding or decreasing output
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Classifying Costs
– Variable Fixed
Production
• Labor 10,000 -------
• Material 15,000 -------
• OH 2,000 10,000
• Totals 27,000 10,000
Sales
• Labor 25,000 --------
• Supplies 5,000 --------
• OH ------ 10,000
• Totals 30,000 10,000
Admin
• Wages -------- 30,000
• OH -------- 15,000
• Totals -------- 45,000
Total 57,000 65,000
TC=F+VQ=65,000+57,000/10,000 (Q)=65,000+5.7Q
(Assumes a base production rate of 10,000 units)
Cost Systems
Process
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Job Order Cost System
Used when goods are produced in distinct batches and
there are significant differences between batches
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Process Cost Systems
Used in repetitive production environments where
large numbers of identical or very similar products
are manufactured
Costs are accumulated by department, rather than by
job order
The average cost is found by averaging the total
costs incurred over the units produced
Examples: paper, drugs, milk
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Calculating the Incremental Profit
TC=F+VQ=65,000+57,000/10,000(Q)
=65,000+5.7Q
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Breakeven Formula
Fixed Cost + Variable Cost + Profit = Sales
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Breakeven Formula Con’t.
How many candy bars does Sam have to
sell at each event to meet his
expectations?
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Breakeven Formula Con’t.
What is his breakeven point for the year?
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Session Wrap-up
General ledger, T-accounts, double entry, and
relation to financial statements
Basic terms and typical accounts
Fixed and Variable cost accounting
Incremental Costs and Profit
Cost Systems
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