©2003 prentice hall business publishing, cost accounting 11/e, horngren/datar/foster an...
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©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
An Introduction to CostTerms and Purposes
Chapter 2
2 - 1
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 1
2 - 2
Define and illustratea cost object.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Cost and Cost Terminology
2 - 3
Cost is a resource sacrificed or forgone to achievea specific objective.
An actual cost is the cost incurred (a historical cost)as distinguished from budgeted costs.
A cost object is anything for which a separatemeasurement of costs is desired.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 2
2 - 4
Distinguish between direct costsand indirect costs.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Direct and Indirect Costs
2 - 5
Direct CostsExample: Paper on whichSports Illustrated magazineis printed
Indirect CostsExample: Lease cost forTime-Warner buildinghousing the senior editorsof its magazine
COST OBJECT
Example: Sports Illustrated magazine
COST OBJECT
Example: Sports Illustrated magazine
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 3
2 - 6
Explain variable costsand fixed costs.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Relationships of Types of Costs
2 - 9
Direct
Indirect
Variable Fixed
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 4
2 - 10
Interpret unit costs cautiously.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 5
2 - 12
Distinguish amongmanufacturing companies,
merchandising companies, andservice-sector companies.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Manufacturing
2 - 13
Manufacturing companiespurchase materials and components and
convert them into finished goods.
A manufacturing company must also develop,design, market, and distribute its products.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Merchandising
2 - 14
Merchandising companiespurchase and then sell tangible products
without changing their basic form.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Merchandising
2 - 15
Service companiesprovide services or intangibleproducts to their customers.
Labor is the most significant cost category.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 6
2 - 16
Differentiate betweeninventoriable costsand period costs.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Types of Inventory
2 - 17
Manufacturing-sector companiestypically have one or more of the
following three types of inventories:
1. Direct materials inventory
2. Work in process inventory (work in progress)
3. Finished goods inventory
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Types of Inventory
2 - 18
Merchandising-sector companies holdonly one type of inventory – the
product in its original purchased form.
Service-sector companies do nothold inventories of tangible products.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Classification ofManufacturing Costs
2 - 19
Direct materials costs
Direct manufacturing labor costs
Indirect manufacturing costs
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Learning Objective 7
2 - 20
Describe the three categories ofinventories commonly foundin manufacturing companies.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Inventoriable Costs
2 - 21
Inventoriable costs (assets)…
become cost of goods sold…
after a sale takes place.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Period Costs
2 - 22
Period costs are all costs in the incomestatement other than cost of goods sold.
Period costs are recorded as expenses of theaccounting period in which they are incurred.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Manufacturing Company
2 - 23
MaterialsInventory
FinishedGoods
Inventory
Revenues
Cost ofGoods Sold
INCOME STATEMENT
PeriodCosts
InventoriableCosts
BALANCE SHEET
Equals Operating Income
whensalesoccur
deduct
Equals Gross Margindeduct
Work inProcess
Inventory
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Merchandising Company
2 - 24
INCOME STATEMENTBALANCE SHEET
whensalesoccur
InventoriableCosts
MerchandisePurchases Inventory
Revenuesdeduct
Cost ofGoods Sold
Equals Gross Margindeduct
PeriodCosts
Equals Operating Income
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
Prime Costs
2 - 25
DirectMaterials
DirectLabor
PrimeCosts+ =
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