1. Manufacturing Cost Terms

2. MATCH TERM & DEFINITIONS
The return that could not be realized from the best forgone alternative use of a resource
Cost
Opportunity Cost
A cost charged against revenue
Expense
Costs not directly related to a cost object
Cost Object
Any item for which a manager wants to measure a cost
Direct Cost
Costs directly related to a cost object
Indirect Cost
A sacrifice of resources

3. THE DEFERENCE of COST and EXPENSE
Cost (Harga Pokok)  Semua biaya yang telah dikeluarkan dan dianggap masih akan memberi manfaat (benefit) di masa yang akan datang  dicatat dalam neraca
Expense (Biaya)  Semua biaya yang telah dikeluarkan untuk menghasilkan prestasi dan dianggap tidak akan memberikan manfaat (benefit) di masa yang akan datang  dicatat dalam perkiraan rugi laba

4. EXPENDITURES, COSTS & EXPENSES
Expenditure – company purchases raw materials for $100
Cost – company reports $100 of raw materials on balance sheet
Expense – company records $100 expense on income statement when it sells the product that uses the raw material

5. COST EXPENSE ASSET EXPENSE
Payroll Check
EXPENSE

6. Quick Check 
Which of the following transactions would immediately result in an expense? (There may be more than one correct answer.)
A. Work in process is completed.
B. Finished goods are sold.
C. Raw materials are placed into production.
D. Administrative salaries are accrued and paid.

7. Quick Check 
Which of the following transactions would immediately result in an expense? (There may be more than one correct answer.)
A. Work in process is completed.
B. Finished goods are sold.
C. Raw materials are placed into production.
D. Administrative salaries are accrued and paid.

8. KARAKTERISTIK OPERASI PERUSAHAAN MANUFAKTUR
Gudang Barang
Pembelian
Gudang
bahan baku
Statemen laba-rugi
Barang jadi
Kos barang terjual
Penjualan
Biaya penjualan
Bagian Penjualan
Biaya administratif
Laporan kos produksi
Pabrik
Bagian Administratif/Umum
Kos barang
manufakturan

9. MANUFACTURING COSTS
Manufacturing consists of activities to convert raw materials into finished goods.
In contrast, a merchandising firm sells goods in the form in which they were bought.
Categories of manufacturing costs include:

10. Konsep kos sebagai bahan olah akuntansi
Aliran fisik
Konsep kos sebagai bahan olah akuntansi
Penyimbolan elemen
Bahan baku
Mesin
Tenaga kerja
K a s
Utang
Produk
Pengukuran elemen
untuk data dasar
kos
kos
kos
kos
kos
kos
Sistem informasi Rp Rp Rp Rp Rp Rp

11. KLASIFIKASI UMUM BIAYA
BIAYA PRODUKSI:
BB (langsung-tidaklangsung)
BTK (langsung-tidaklangsung)
BOP
BIAYA NON PRODUKSI:
Biaya pemasaran atau penjualan
Biaya administrasi

12. KOMPONEN KOS PRODUK Overhead Material (bahan baku)
Tenaga kerja langsung

13. Manufacturing Overhead
Direct Materials
Direct Labor
Manufacturing Overhead
The Product

14. Example: A radio installed in an automobile
DIRECT MATERIALS
Those materials that become an integral part of the product and that can be conveniently traced directly to it.
Example: A radio installed in an automobile

15. Example: Wages paid to automobile assembly workers
DIRECT LABOR
Those labor costs that can be easily traced to individual units of product.
Example: Wages paid to automobile assembly workers

16. MANUFACTURING OVERHEAD
Manufacturing costs that cannot be traced directly to specific units produced.
Examples: Indirect labor and indirect 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.

17. The cost of materials that are an integral part of the product.
Direct
Materials
The cost of labor directly involved in converting material into the product.
Product
Costs
Direct
Labor
Manufacturing costs other than direct materials and direct labor.
Factory
Overhead

18. MATERIALS RAW MATERIALS Basic materials used in manufacturing
DIRECT MATERIALS
Raw materials that can be physically and directly associated with the finished product

19. Considered part of manufacturing overhead
MATERIALS
INDIRECT MATERIALS
Raw materials that cannot be easily associated with the finished product
Not physically part of the finished product or they are an insignificant part of finished product in terms of cost
Considered part of manufacturing overhead

20. LABOR
DIRECT LABOR
Work of factory employees that can be physically and directly associated with converting raw materials into finished goods
INDIRECT LABOR
Work of factory employees that has no physical association with the finished product or for which it is impractical to trace to the goods produced

21. MANUFACTURING OVERHEAD
Costs that are indirectly associated with manufacturing the product
Includes all manufacturing costs except direct materials and direct labor

22. MANUFACTURING COSTS are often classified as follows:
Direct Material
Direct Labor
Manufacturing Overhead
Prime Cost
Conversion Cost

23. PRIME COSTS
Direct
Materials
Direct
Labor
Prime
Costs + =

24. What are the prime costs for Bicycles
by the Sea?
Direct materials used $200,000
+ Direct labor ,500
= $305,000

25. + = CONVERSION COSTS Direct Labor Manufacturing Overhead Conversion
Other
Indirect
Labor
Indirect
Materials

26. What are the conversion costs for
Bicycles by the Sea?
Direct labor $105,500
+ Indirect manufacturing costs 194,500
= $300,000

27. NONMANUFACTURING COSTS
Marketing and selling costs . . .
Costs necessary to get the order and deliver the product.
Administrative costs . . .
All executive, organizational, and clerical costs.

28. Quick Check 
Which of the following costs would be considered manufacturing overhead at Boeing? (More than one answer may be correct.)
A. Depreciation on factory forklift trucks.
B. Sales commissions.
C. The cost of a flight recorder in a Boeing 767.
D. The wages of a production shift supervisor.

29. Quick Check 
Which of the following costs would be considered manufacturing overhead at Boeing? (More than one answer may be correct.)
A. Depreciation on factory forklift trucks.
B. Sales commissions.
C. The cost of a flight recorder in a Boeing 767.
D. The wages of a production shift supervisor.

30. PRODUCT COSTS Versus PERIOD COSTS
Product costs include direct materials, direct labor, and manufacturing overhead.
Period costs are not included in product costs. They are expensed on the income statement.
Inventory
Cost of Good Sold
Balance Sheet
Income Statement
Sale
Expense
Income Statement

31. PRODUCT COSTS What are product costs?
They are the costs to produce (or purchase) tangible products intended for sale.

32. PRODUCT COSTS There are two types of product costs: Full Inventoriable

33. External Reporting
Inventoriable
product
costs
Period
costs

34. INVENTORIABLE PRODUCT COSTS
For external reporting, merchandisers’ inventoriable product costs include only costs that are incurred in the purchase of goods.
Inventoriable costs are an asset.
Period costs flow as expenses directly to the income statement.

35. INVENTORIABLE PRODUCT COSTS
For external reporting, manufacturers’ inventoriable product costs include raw materials plus all other costs incurred in the manufacturing process.
Inventoriable product costs are incurred only in the third element of the value chain.
Costs incurred in other elements of the value chain are period costs.

36. INVENTORIABLE PRODUCT COSTS
Direct
Materials
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Manufacturing Overhead

37. INVENTORIABLE PRODUCT COSTS
Direct
Materials
Direct
Labor
Prime Costs = Direct Materials + Direct Labor

38. INVENTORIABLE PRODUCT COSTS
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Conversion Costs = Direct Labor + Manufacturing
Overhead

39. The costs of converting the materials into finished products consists of direct labor and factory overhead. These two costs combined are often referred to as conversion costs

40. PERIOD COSTS
Matched with revenue of a specific time period and charged to expense as incurred
Non-manufacturing costs
Deducted from revenues in period incurred to determine net income
Includes all selling and administrative expenses

41. EXAMPLES OF PERIOD COSTS
SELLING EXPENSES
Advertising expenses
Sales salaries expenses
Commission expenses

42. EXAMPLES OF PERIOD COSTS
ADMINISTATIVE EXPENSES
Office salaries expenses
Office supplies expenses
Depreciation expense— office buildings and office equipment

43. LO 4 Distinguish between product costs and period costs.

44. 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.

45. 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.

46. Review Question Direct Materials are a: Product Manufacturing Period
Cost Overhead Cost
a. Yes Yes No
b. Yes No No
c. Yes Yes Yes
d. No No No

47. Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead.
______ a. Windshield
______ b. Engine
______ c. Wages of assembly line worker
______ d. Depreciation of factory machinery
______ e. Factory machinery lubricants
______ f. Tires
______ g. Steering wheel
______ h. Salary of painting supervisor DM DL MO

48. Identify whether each of the following costs should be classified as product costs or period costs.
____________ a. Manufacturing overhead
____________ b. Selling expenses
____________ c. Administrative expenses
____________ d. Advertising expense
____________ e. Direct labor
____________ f. Direct material
Product
Period

49. COST OBJECTS
Cost objects are anything for which a separate measurement of costs is desired.
Cost drivers are any factors that affect cost.

50. What are examples of cost objects? individual products
alternative marketing strategies
geographic segments of the business
departments

51. Flow of Manufacturing Costs
Direct Labor
Factory Overhead
MATERIALS STOREROOM
INK
Materials Inventory
PRINTING PLANT
Job 73
Work in Process Inventory

52. Flow of Manufacturing Costs
CAMPUS BOOKSTORE
Cost of Goods Sold
WAREHOUSE
Job 69
Job 70
Finished Goods Inventory

53. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods
Materials
Purchased DM DM
Cost of Goods Sold
Wages Payable
Factory Overhead
Total
Wages DM
Direct materials used in production

54. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods DM
Materials
Purchased DM IM IM
Cost of Goods Sold
Wages Payable
Factory Overhead
Total
Wages IM
Indirect materials used in production

55. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods
Materials
Purchased DM DM DL IM
Cost of Goods Sold
Wages Payable
Factory Overhead IM
Total
Wages DL DL
Direct labor used in production

56. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods DM
Materials
Purchased DM DL IM
Cost of Goods Sold
Wages Payable
Factory Overhead
Total
Wages DL IM IL IL IL
Indirect labor used in production

57. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods DM
Materials
Purchased DM DL IM
Cost of Goods Sold
Wages Payable
Factory Overhead
Total
Wages DL IM IL IL
OFOH
OFOH
Other factory overhead costs incurred during production

58. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods DM
Materials
Purchased DM DL IM
FOHA
Cost of Goods Sold
Wages Payable
Factory Overhead DL IM
Total
Wages
FOHA
Based on predetermined overhead rate IL IL
OFOH
FOHA
Factory overhead applied to work in process

59. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods DM
COGM
COGM
Materials
Purchased DM DL IM
FOHA
Cost of Goods Sold
Wages Payable
Factory Overhead DL IM
Total
Wages
FOHA IL IL
OFOH
COGM
Cost of goods manufactured and transferred to finished goods

60. Flow of Manufacturing Costs
Materials
Work in Process
Finished Goods
Materials
Purchased DM DM
COGM
COGM
SOLD
SOLD DL IM
FOHA
Cost of Goods Sold
Wages Payable
Factory Overhead IM
Total
Wages DL
FOHA IL IL
OFOH
SOLD
Finished goods sold

61. FLOW of COSTS THROUGH a MANUFACTURER’S ACCOUNTS
Direct Materials Inventory
Beginning inventory
Purchases and freight-in
Direct materials available for use
Ending inventory
Direct materials used
Work in Process Inventory
Beginning inventory
Direct materials used
Direct labor
Manufacturing overhead
Total manufacturing costs
to account for
Ending inventory
Cost of goods manufactured

62. FLOW of COSTS THROUGH a MANUFACTURER’S ACCOUNTS
Finished Goods Inventory
Beginning inventory
Cost of goods manufactured
Cost of goods available for sale
Ending inventory
Cost of goods sold

63. DIFFERENTIAL COSTS and REVENUES
Costs and revenues that differ among alternatives.
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 commuting cost to the city is $300 per month.
Differential revenue is:
$2,000 – $1,500 = $500
Differential cost is:
$300

64. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the pizza you ate last night relevant in this decision? In other words, should the cost of the pizza affect the decision of whether you drive or take the train to Portland?
A. Yes, the cost of the pizza is relevant.
B. No, the cost of the pizza is not relevant.

65. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the pizza you ate last night relevant in this decision? In other words, should the cost of the pizza affect the decision of whether you drive or take the train to Portland?
A. Yes, the cost of the pizza is relevant.
B. No, the cost of the pizza is not relevant.

66. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.

67. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.

68. NOTE
Every decision involves a choice from among at least two alternatives.
Only those costs and benefits that differ between alternatives (i.e., Differential costs and benefits) are relevant in a decision. All other costs and benefits can and should be ignored.

69. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.

70. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.

71. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the depreciation on your car relevant in this decision?
A. Yes, the depreciation is relevant.
B. No, the depreciation is not relevant.

72. Quick Check 
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the depreciation on your car relevant in this decision?
A. Yes, the depreciation is relevant.
B. No, the depreciation is not relevant.
Depreciation that
is a function of miles driven
would be relevant.
Depreciation that is a
function of the passage of
time would not be relevant.

73. OPPORTUNITY COSTS
The potential benefit that is given up when one alternative is selected over another.
Example: If you were not attending college, you could be earning $15,000 per year. Your opportunity cost of attending college for one year is $15,000.

74. SUNK COSTS
Sunk costs cannot be changed by any decision. They are not differential costs and should be ignored when making decisions
Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.

75. Quick Check 
Suppose that your car could be sold now for $5,000. Is this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.

76. Quick Check 
Suppose that your car could be sold now for $5,000. Is this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.

77. The End