Manufacturing Cost Accounting

Manufacturing Cost Accounting Superfactory Excellence Program™ www.superfactory.com

© 2004 Superfactory™. All Rights Reserved.

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Outline         

Cost Terms, Concepts, and Classifications Job Order Costing Cost Behavior Cost – Volume – Profit Activity Based Costing Profit Planning Standard Costs Flexible Budgets and Overhead Analysis Relevant Costs for Decision-Making

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Product Costs - A Closer Look Raw Materials Beginning raw materials inventory + Raw materials purchased = Raw materials available for use in production

Manufacturing Costs

Work In Process

Direct materials + Direct labor + Mfg. overhead = Total manufacturing costs

Beginning work in process inventory Total manufacturing costs Total work in process for the period Ending work in process inventory Cost of goods manufactured.

+ =

– =

Costs Costsassociated associatedwith withthe the goods goods that that are arecompleted completed during duringthe the period period are are transferred transferredto tofinished finished goods goods inventory. inventory. © 2004 Superfactory™. All Rights Reserved.

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The Contribution Format Sales Revenue Less: Variable costs Contribution margin Less: Fixed costs Net income

Total $ 100,000 60,000 $ 40,000 30,000 $ 10,000

Unit $ 50 30 $ 20

The contribution margin format emphasizes cost behavior. Contribution margin covers fixed costs and provides for income. © 2004 Superfactory™. All Rights Reserved.

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Calculating Breakeven in Units Here is the information from Wind Bicycle Co.:

Sales (500 bikes) Less: variable expenses Contribution margin Less: fixed expenses Net income

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Total $250,000 150,000 $100,000 80,000 $ 20,000

Per Unit $ 500 300 $ 200

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The Master Budget Sales Budget

Ending Inventory Budget

Production Budget

Selling and Administrative Budget

Direct Materials Budget

Direct Labor Budget

Manufacturing Overhead Budget

Cash Budget

Budgeted Financial Statements © 2004 Superfactory™. All Rights Reserved.

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The Direct Materials Budget

Production Materials per unit Production needs Add desired ending inventory Total needed Less beginning inventory Materials to be purchased © 2004 Superfactory™. All Rights Reserved.

April 26,000 5 130,000

May 46,000 5 230,000

June 29,000 5 145,000

23,000 153,000

14,500 244,500

11,500 156,500

13,000

23,000

14,500

140,000

221,500

142,000 7

Labor Variances Summary

Actual Hours × Actual Rate

Actual Hours × Standard Rate

Standard Hours × Standard Rate

1,550 hours × $6.20 per hour

1,550 hours × $6.00 per hour

1,500 hours × $6.00 per hour

= $9,610

= $9,300

= $9,000

Rate variance $310 unfavorable © 2004 Superfactory™. All Rights Reserved.

Efficiency variance $300 unfavorable 8

Flexible Budget Performance Report CheeseCo Cost Formula Per Hour

Total Fixed Costs

Machine hours Variable costs Indirect labor Indirect material Power Total variable costs Fixed Expenses Depreciation Insurance Total fixed costs Total overhead costs

$

$

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4.00 3.00 0.50 7.50 $ 12,000 2,000

Flexible Budget

Actual Results

8,000

8,000

$ 32,000 24,000 4,000 $ 60,000

$ 34,000 25,500 3,800 $ 63,300

$ 2,000 U 1,500 U 200 F $ 3,300 U

$ 12,000 2,000 $ 14,000 $ 74,000

$ 12,000 2,050 $ 14,050 $ 77,350

0 50 U 50 U $ 3,350 U

Variances 0

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Utilization of a Constrained Resource Let’s calculate the contribution margin per unit of the scarce resource, machine A1.

IfIf there there are are no no other other considerations, considerations, the the best best plan plan would would be be to to produce produce to to meet meet current current demand demand for for Product Product 22 and and then then use use remaining remaining capacity capacity to to make make Product Product 1. 1. © 2004 Superfactory™. All Rights Reserved.

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