Lecture Fundamentals of cost accounting (4th edition): Chapter 6 - Lanen, Anderson, Maher

(BQ) Chapter 6: Fundamentals of product and service costing. This chapter provides an overview of alternative cost systems for product and service costing. Details and extensions to the basic models described here are presented in the following three chapters.
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Lecture Fundamentals of cost accounting (4th edition): Chapter 6 - Lanen, Anderson, Maher© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in anymanner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. FundamentalsofProduct andServiceCosting Chapter6 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPAMcGrawHill/Irwin Copyright©2014byTheMcGrawHillCompanies,Inc.Allrightsreserved. LearningObjectivesLO 6-1 Explain the fundamental themes underlying the design of cost systems.LO 6-2 Explain how cost allocation is used in a cost management system.LO 6-3 Explain how a basic product costing system works.LO 6-4 Understand how overhead cost is allocated to products.LO 6-5 Explain the operation of a two-stage allocation system for product costing.LO 6-6 Describe the three basic types of product costing systems: job order, process, and operations. 63CostManagementSystem Keys to a good cost management system: • Oriented to the needs of the decision makers • Designed so that benefits exceed costs 64LO6-1 CostManagementSystems LO 6-1 Explainthefundamentalthemesunderlying thedesignofcostsystems. The objective of the cost management system is to provide information about costs relevant for decision making. The cost management system accumulates and reports costs about processes, products, and services. 65 ReasonstoCalculateProductLO6-1 orServiceCosts • For decision making • For deciding what to sell • For setting prices • For knowing the cost of goods sold • For knowing the cost of inventory 66LO6-2 CostAllocationandProductCosting LO 6-2 Explainhowcostallocationisused inacostmanagementsystem. Basic Cost Flow Diagram Cost Direct Direct Manufacturing pools materials labor overhead Indirect Cost allocation (allocated rule by direct Direct labor cost) Cost Alpha Beta objects 67LO6-2 FundamentalThemesUnderlying theDesignofCostSystemsforManagerialPurposes Cost systems should have a decision focus. Different cost information is used for different purposes. Cost information for managerial purposes must meet the cost-benefit test. 68LO6-3 BasicCostFlowModel LO 6-3 Explainhowabasicproductcostingsystemworks. How costs and units move through inventories: This is true for the following accounts: – Raw Materials (RM) – Work-in-Process (WIP) – Finished Goods (FG) 69 CostingwithNoWorkinProcessLO6-3 Inventories Baxter Paint begins production on April 1. It starts and completes production of 100,000 gallons of paint in April and has no ending work-in-process inventory. Cost of resources used in April: Materials $ 400,000 Labor 100,000 Manufacturing overhead 500,000 Total $1,000,000 610 Costingw ...