1. Calculate Cost of Goods Manufactured © Dale R. Geiger 20111

2. Terminal Learning Objective Task: Calculate Cost of Goods Manufactured Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. Standard: with at least 80% accuracy. Explain terminology Differentiate between product and period costs Identify key elements in Inventory chain template Solve for missing variables in Inventory chain template © Dale R. Geiger 20112

3. Input  Output  What is the Cost of the Output? © Dale R. Geiger 20113

4. Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20114

5. Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20115

6. Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20116

7. Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20117

8. Cost Accounting Terminology Direct Costs identified MATERIALS and LABOR that can be identified with a particular product or process Example: Lumber and hardware for furniture Indirect Costs identified PRODUCTION-RELATED costs that cannot be identified with a particular product or process Example: Maintenance on power tools © Dale R. Geiger 20118

9. Cost Accounting Terminology 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 © Dale R. Geiger 20119

10. Cost Accounting Terminology 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 © Dale R. Geiger 201110

11. Cost Accounting Terminology 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 © Dale R. Geiger 201111

12. Cost Accounting Terminology 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 © Dale R. Geiger 201112

13. Cost Accounting Terminology 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 © Dale R. Geiger 201113

14. Overhead Illustration Supervisor’s Salary Utilities Factory Depreciation General Supplies Assigned to Products  2000  700  250  100 Manufacturing Overhead 3050  © Dale R. Geiger 201114

15. Check on Learning Costs that can be identified with a particular product or process are called An aggregation of indirect costs is called © Dale R. Geiger 201115

16. Cost Accounting Terminology 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 © Dale R. Geiger 201116

17. Cost Accounting Terminology 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 © Dale R. Geiger 201117

18. Cost Accounting Terminology 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 © Dale R. Geiger 201118

19. Cost Accounting Terminology 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 © Dale R. Geiger 201119

20. Cost Accounting Terminology 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 © Dale R. Geiger 201120

21. Cost Accounting Terminology 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 © Dale R. Geiger 201121

22. Check on Learning The cost of utilities for the manufacturing facility would be a product or a period cost? The cost of utilities for the retail sales outlet would be a product or a period cost? Period costs are reported on which financial statement? © Dale R. Geiger 201122

23. Cost Classification Which are Direct Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 23

24. Cost Classification Which are Direct Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 24

25. Cost Classification Which are Indirect Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 25

26. Cost Classification Which are Indirect Costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 26

27. Cost Classification Which are overhead? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 27

28. Cost Classification Which are overhead? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 28

29. Cost Classification Which are conversion costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 29

30. Cost Classification Which are conversion costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 30

31. Cost Classification Which are product costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 31

32. Cost Classification Which are product costs? Direct Materials Direct Labor Indirect Materials Indirect Labor Other Overhead © Dale R. Geiger 2011 32

33. Check on Learning Which category of cost includes all production costs except Direct Materials? © Dale R. Geiger 201133

34. Types of Inventories Merchandise 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 Examples? © Dale R. Geiger 201134

35. Types of Inventories 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 Examples? © Dale R. Geiger 201135

36. Overhead The Inventory Chain © Dale R. Geiger 201136

37. Overhead The Inventory Chain © Dale R. Geiger 201137

38. Overhead The Inventory Chain © Dale R. Geiger 201138

39. Overhead The Inventory Chain © Dale R. Geiger 201139

40. Overhead The Inventory Chain © Dale R. Geiger 201140

41. The Inventory Chain Overhead © Dale R. Geiger 201141

42. The Inventory Chain Overhead © Dale R. Geiger 201142

43. The Inventory Chain Overhead © Dale R. Geiger 201143

44. Input-Output Equation 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? © Dale R. Geiger 201144

45. Check on Learning What are the key variables to the Work in Process account? What is the input to the raw materials account? © Dale R. Geiger 201145

46. Using the Inventory Chain © Dale R. Geiger 201146

47. Using the Inventory Chain © Dale R. Geiger 201147

48. Using the Inventory Chain © Dale R. Geiger 201148

49. Using the Inventory Chain © Dale R. Geiger 201149

50. Using the Inventory Chain © Dale R. Geiger 201150

51. Using the Inventory Chain © Dale R. Geiger 201151

52. Using the Inventory Chain © Dale R. Geiger 201152

53. Practical Exercise © Dale R. Geiger 201153

54. Accounting for Manufacturing Spreadsheet Enter the information given in the exercise above into the white blanks in the T- accounts © Dale R. Geiger 201154

55. Accounting for Manufacturing Spreadsheet The “Results” tab displays the calculations using the given data © Dale R. Geiger 201155

56. Accounting for Manufacturing Spreadsheet “Solve” indicates that the value displayed has been calculated using the information given in the Data Input tab. © Dale R. Geiger 201156