Calculate Cost of Goods Manufactured Principles of Cost Analysis and Management
Terminal Learning Objective Action: Calculate Cost of Goods Manufactured Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for International Learners): Interpret Cost Accounting Terminology Identify Key Elements in the Inventory Chain Template Identify “Solve” for Missing Variables in the Inventory Chain Template
Cost Accounting Terminology Direct Costs Materials and Labor that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs Production-Related costs that cannot be identified with a particular product or process Example: Maintenance on power tools
Cost Accounting Terminology (Cont.) Direct Costs Materials and Labor that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs Production-Related costs that cannot be identified with a particular product or process Example: Maintenance on power tools
Cost Accounting Terminology (Cont.) Direct Costs Materials and Labor that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs Production-Related costs that cannot be identified with a particular product or process Example: Maintenance on power tools
Cost Accounting Terminology (Cont.) Direct Costs Materials and Labor that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs Production-Related costs that cannot be identified with a particular product or process Example: Maintenance on power tools
Cost Accounting Terminology (Cont.) Direct Costs Materials and Labor that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs Production-Related costs that cannot be identified with a particular product or process Example: Maintenance on power tools
Cost Accounting Terminology (Cont.) Manufacturing Overhead An aggregation of indirect production-related costs Will be assigned to products or processes and become part of the cost of the product Conversion Costs Costs incurred to Convert raw materials into finished goods Examples: cost of machinery, labor, utilities
Cost Accounting Terminology (Cont.) Manufacturing Overhead An aggregation of indirect production-related costs Will be assigned to products or processes and become part of the cost of the product Conversion Costs Costs incurred to Convert raw materials into finished goods Examples: cost of machinery, labor, utilities
Cost Accounting Terminology (Cont.) Manufacturing Overhead An aggregation of indirect production-related costs Will be assigned to products or processes and become part of the cost of the product Conversion Costs Costs incurred to Convert raw materials into finished goods Examples: cost of machinery, labor, utilities
Cost Accounting Terminology (Cont.) Manufacturing Overhead An aggregation of indirect production-related costs Will be assigned to products or processes and become part of the cost of the product Conversion Costs Costs incurred to Convert raw materials into finished goods Examples: cost of machinery, labor, utilities
Cost Accounting Terminology (Cont.) Manufacturing Overhead An aggregation of indirect production-related costs Will be assigned to products or processes and become part of the cost of the product Conversion Costs Costs incurred to Convert raw materials into finished goods Examples: cost of machinery, labor, utilities
Overhead Illustration Manufacturing Overhead Supervisor’s Salary Utilities Factory Depreciation General Supplies Assigned to Products 2000 700 250 100 3050
Cost Accounting Terminology (Cont.) Product Costs All costs incurred in the production of goods Examples: Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Must be Capitalized to the inventory account Will only be reported as an Expense when the product is sold production Flour, sugar, baker’s wages, cost of operating and maintaining bakery equipment Capitalized Expense
Cost Accounting Terminology (Cont.) Period Costs Costs incurred in all activities other than the production of goods Examples: Administrative Salaries, Sales Commissions, Sales and Administrative Facilities Will be reported as expenses on the Income Statement in the period incurred May be allocated to products for managerial purposes
Cost Classification Which are Direct Costs? Direct Materials Indirect Materials Direct Labor Direct Labor Indirect Labor Other Overhead
Cost Classification Which are Indirect Costs? Direct Materials Indirect Materials Indirect Materials Direct Labor Indirect Labor Indirect Labor Other Overhead Other Overhead
Cost Classification (Cont.) Which are Overhead? Direct Materials Indirect Materials Indirect Materials Direct Labor Indirect Labor Indirect Labor Other Overhead Other Overhead
Cost Classification (Cont.) Which are Conversion Costs? Direct Materials Indirect Materials Direct Labor Indirect Labor Direct Labor Indirect Labor Other Overhead Other Overhead
Cost Classification (Cont.) Which are Product Costs? Direct Materials Direct Materials Indirect Materials Indirect Materials Direct Labor Direct Labor Indirect Labor Indirect Labor Other Overhead Other Overhead
LSA #1 Check on Learning Q1. Costs that can be identified with a particular product or process are called? A1. Q2. An aggregation of indirect costs is called? A2. Q3. The cost of utilities for the manufacturing facility would be a product or a period cost? A3. Q1. Costs that can be identified with a particular product or process are called? A1. Direct Costs Q2. An aggregation of indirect costs is called? A2. Manufacturing Overhead Q3. The cost of utilities for the manufacturing facility would be a product or a period cost? A3. Product cost
LSA #1 Check on Learning (Cont.) Q4. The cost of utilities for the retail sales outlet would be a product or a period cost? A4. Q5. Period costs are reported on which financial statement? A5. Q6. Which category of cost includes all production costs except Direct Materials? A6. Q4. The cost of utilities for the retail sales outlet would be a product or a period cost? A4. Period cost Q5. Period costs are reported on which financial statement? A5. Income Statement (aka Statement of Activities) Q6. Which category of cost includes all production costs except Direct Materials? A6. Conversion Costs
LSA #1 Summary In this lesson, we discussed Direct vs. Indirect Costing, Manufactured overhead and Conversion costs. We touched on the definition of Product cost and how it can have both Direct and Indirect costs. Finally, we covered how cost is classified as it pertains to Other Overhead - Direct / Indirect Labor- and Direct / Indirect Materials.
Types of Inventories Merchandise Inventory Raw Materials Inventory Includes goods purchased from a supplier and sold to the customer without alteration Examples? Raw Materials Inventory Includes purchase cost of Direct Materials held in inventory
Types of Inventories (Cont.) Work in Process Inventory Includes Direct Materials costs and capitalized labor and overhead costs of unfinished goods Examples? Finished Goods Inventory Includes Cost of Goods Manufactured by the seller
The Inventory Chain Overhead
The Inventory Chain (Cont.) Overhead
The Inventory Chain (Cont.) Overhead
The Inventory Chain (Cont.) Overhead
The Inventory Chain (Cont.) Overhead
The Inventory Chain (Cont.) Overhead
The Inventory Chain (Cont.) Overhead
The Inventory Chain (Cont.) Overhead
Input-Output Equation Beginning + Input – Output = End If you take more water out of the bucket than you put in, what happens to the level in the bucket?
LSA #2 Check on Learning Q1. What are the key variables to the Work in Process account? A1. Q2. What is the input to the Raw Materials account? A2. Q1. What are the key variables to the Work in Process account? A1. Beginning balance, Direct Labor, Materials Used, Overhead, Cost of Goods Manufactured, and Ending balance. Q2. What is the input to the Raw Materials account? A2. Purchases
LSA #2 Summary During this block, we identified and defined the four types of inventory as well as identifying the inventory chain and how it uses these types of inventory to produce the products it sells.
Using the Inventory Chain
Using the Inventory Chain (Cont.)
Using the Inventory Chain (Cont.)
Using the Inventory Chain (Cont.)
Using the Inventory Chain (Cont.)
Using the Inventory Chain (Cont.)
Using the Inventory Chain (Cont.)
Accounting for Manufacturing Spreadsheet Demo Enter the information given in the exercise above into the white blanks in the T-accounts
Accounting for Manufacturing Spreadsheet Demo (Cont.) The “Results” tab displays the calculations using the given data
Accounting for Manufacturing Spreadsheet Demo (Cont.) “Solve” indicates that the value displayed has been calculated using the information given in the Data Input tab.
LSA #3 Check on Learning Q1. When we think about the three T-accounts, we should think about them as what? A1. Q2. True or False; if we know three of the four variables, we can solve for the fourth. A2. Q1. When we think about the three T-accounts, we should think about them as what? A1. As a Bucket Q2. True or False; if we know three of the four variables, we can solve for the fourth. A2. True
LSA #3 Summary During this lesson, we solved for the missing variables in the inventory chain template manually and then went over how to use the excel spreadsheet to solve for the missing variables.
Practical Exercise / Review
TLO Summary Action: Calculate Cost of Goods Manufactured Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for International Learners): Interpret Cost Accounting Terminology Identify Key Elements in the Inventory Chain Template Identify “Solve” for Missing Variables in the Inventory Chain Template