Tài chính kế toán - Chapter 4: Product costing systems

Chapter 4Product costing systems4-1Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithOutlineProduct costingDifferent costs for different purposesDesigning product costing systemsFlow of costs in manufacturing businessesAllocating overhead costs to productsAccounting for manufacturing overheadsTypes of product costing systemsJob costingProcess costing4-2Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithProduct costingProduct costing systemsAccumulate product-related costs and use procedures to assign them to the final productsIn some businesses upstream and downstream costs are regarded as product relatedUpstream costs—research and development, product design, supplyDownstream costs—marketing, distribution, customer serviceProduct costs are the input to the product costing system4-3Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith4-4Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithDifferent product costs for different purposesProduct costs can include upstream, manufacturing and downstream costsInclusion of various costs depends on the timeframe and type of decision to be madeManagers’ needs for product cost information will vary depending on the type of decision to be made and managers’ personal preferences4-5Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Different product costs for different purposes (cont.)Cost for inventory valuation for external reporting must include only manufacturing costsFor long-term decisions about products a wider definition may be usedProduct costs are used to value inventory, for short-term decision making and strategic decision making, for planning and controlling costs and for cost reimbursement4-6Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)4-7Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithDifferent product costs for different purposes (cont.)Current or future product costsCurrent product costs are relevant for inventory valuation Future product costs may be relevant for input into some decisions such as pricingFrequency of cost informationInfrequently for long-term decisions or some short-term decisionsMore regularly for inventory valuationIn summary, product costs may differ overThe range of costs includedCurrent or future costsHow frequently product costing information is required4-8Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithDesigning product costing systemsIdentify the managers’ needsAll product cost information may not come from a single product costing systemFuture product costsLong-term product costsInventory valuationCost and benefits of providing various cost estimates must be compared4-9Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithFlow of costs in manufacturing businessesFor inventory valuation in external financial reports only manufacturing costs are assigned to products, as required by Australian accounting standardsManufacturing costs consist of: Direct materialDirect labourManufacturing overhead4-10Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Flow of costs in manufacturing businesses (cont.)Manufacturing costs flow through several manufacturing ledger accountsRaw materials inventory Work in process inventory Finished goods inventoryCost of goods sold expenseProfit and loss accountAustralian accounting standards require that upstream and downstream costs are expensed in the period in which they are incurredMay be included in product costs where relevant to managers’ decision making4-11Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith4-12Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithAllocating overhead costs to products To estimate the cost of a product we need to identify the cost of resources used to produce the productSome resources are consumed directly by products and are traced directly to each productDirect material and direct labourOverhead costs are essential to production but as they have no observable relationship with the product they need to be allocated to productsThese cost are indirect costs to the product4-13Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Allocating overhead costs to products (cont.)Aggregate overhead costs into cost poolsIdentify the overhead cost driver(s)The factor or activity that causes cost to be incurredCalculate a predetermined (or budgeted) overhead rate per unit of cost driverApply manufacturing overhead costs to products at the budgeted (or predetermined) overhead rate, multiplied by the quantity of cost driver consumed by the product4-14Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithAccounting for manufacturing overhead Two types of manufacturing overhead are recorded in an accounting systemActual manufacturing overheadManufacturing overhead costs incurred throughout the accounting periodDebited to the manufacturing overhead accountApplied manufacturing overheadEstimate of the overhead resources used to manufacture a productApplied to products using a predetermined overhead rateCredited to the manufacturing overhead account4-15Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)4-16Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithAccounting for manufacturing overhead (cont.)At the end of an accounting period total actual manufacturing overhead may not equal total applied manufacturing overheadDisposing of underapplied or overapplied overhead at the end of the accounting periodClose the underapplied or overapplied overhead to cost of goods soldorProrate to cost of goods sold, work in process inventory and finished goods inventory4-17Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Accounting for manufacturing overhead (cont.)Most firms dispose of underapplied or overapplied overhead at the end of the year onlymonthly fluctuations may average out over a year One reason for underapplied or overapplied manufacturing overhead is an error or inaccuracy in the predetermined overhead rate4-18Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithTypes of product costing systemsConventional product costing systems range from job costing to process costingJob costingManufacturing costs traced to individual jobsProducts produced in distinct jobs/batches which are significantly differentPrinters, furniture manufacturers, machinery manufacturersMany service firms such as lawyers, accountants, consulting engineers4-19Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Types of product costing systems (cont.)Process costingProduction costs traced to process/department and averaged across all units producedMass production or repetitive environmentPetrol production, processed food, chemical and plastics manufacturersRepetitive services such as routine processing of cheques by banks, handling of licence applications by government departments 4-20Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Types of product costing systems (cont.)Process costing involvesEstimating the cost of production processesCalculating the average cost per unit by dividing the cost of the process by the number of units producedWhere there are sequential processes, the costs of products produced in one department are transferred into the next departmentSome product costing systems have features of both job costing and process costing4-21Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith4-22Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithJob costingBill of materials—lists all the materials required for a jobMaterial requisition forms—authorises the movement of raw materials from the warehouse to the production departmentJob cost sheet—summarises the costs of direct material, direct labour and manufacturing overhead for a particular job4-23Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Job costing (cont.)Purchase of materials Raw material inventory xxxx Account payable xxxxTransferring direct material to jobs Work in process inventory xxxx Raw material inventory xxxx4-24Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Job costing (cont.)Use of indirect material in production Manufacturing overhead xxxx Manufacturing supplies inventory xxxxCharging direct labour to jobs Work in process inventory xxxx Wages payable xxxx4-25Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Job costing (cont.)Accounting for indirect labour Manufacturing overhead xxxx Wages payable xxxxAccounting for manufacturing expenses Manufacturing overhead xxxx Prepaid rent xxxx Depreciation on equipment xxxx etc.4-26Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Job costing (cont.)Application of manufacturing overhead Work in process inventory xxxx Manufacturing overhead xxxxCompletion of production job Finished goods inventory xxxx Work in process inventory xxxx4-27Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Job costing (cont.)Sale of goods Accounts receivable xxxx Sales revenue xxxx Cost of goods sold xxxx Finished goods inventory xxxx4-28Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith(cont.)Job costing (cont.)Underapplied overhead Cost of goods sold xxxx Manufacturing overhead xxxxOr the reverse entry if overhead is overapplied4-29Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithProcess costingThe approach taken in process costing depends on The existence of work in process (WIP) inventory at the end of the accounting periodThe degree to which products are identical in their consumption of direct material and specific production processesSimple forms of process costing assume no WIP inventoryMore complex forms of process costing involving WIP are covered in Chapter 54-30Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith4-31Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-SmithSummaryDifferent measures of product costs are appropriate for different purposesPast costs for inventory valuationCurrent and future costs for decision-making, which may include non-manufacturing costsOverhead costs are allocated to product costs according to their consumption of an overhead cost driverThe choice of product costing system depends on the characteristics of the product and production environment and may range from job costing to process costing4-32Copyright  2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith