topic 1 CA (2015)

Apunte Inglés
Universidad Universidad Pompeu Fabra (UPF)
Grado International Business Economics - 3º curso
Asignatura Cost Accounting I
Año del apunte 2015
Páginas 11
Fecha de subida 21/01/2016
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CA - ssegues TOPIC#1: COST CLASSIFICATIONS FINANCIAL, MANAGEMENT AND COST ACCOUNTING – COMPARISON Financial Accounting: Measures and records business transactions and provides financial statements Management Accounting: Measures and reports financial and non-financial information that helps managers to make decisions to fulfill the goals of an organization Cost Accounting: Supports both management and financial accounting. Provides information related to the cost of acquiring or consuming resources by an organization (collection and analysis of cost data). COMPARING FINANCIAL AND MANAGEMENT ACCOUNTING CA - ssegues EXPENSE – COST – PAYMENT – INVESTMENT Expense: - A financial accounting term Decrease in owner’s equity accompanied by a decrease in assets or an increase in liabilities Cost: - A managerial accounting term Sacrifice of a resource measured by the price paid or to be paid to acquire or build goods or services Payment: - Cash outflow, reduction in cash Investment: - Refers to assets COST TERMS AND CLASSIFICATIONS - Objective: Cost Calculation o Costs by Nature o Costs by business function o Direct vs. indirect costs o Product vs. period costs - Objective: Decision Making o Variable – Fixed – Step fixed – Semi variable costs o Opportunity costs o Relevant costs o Sunk costs o Incremental costs o Controllable costs OBJECTIVE: COST CALCULATION COSTS BY NATURE Material costs External service costs (transports, cleaning,…) Labor costs (wages, Social Security, Pension plans,…) Financial costs (loan interests,…) Amortization / Depreciation costs Opportunity costs CA - ssegues COSTS BY BUSINESS FUNCTION - Research & Development costs Design costs Production costs Marketing costs Distribution costs Administration, management costs After-sales costs DIRECT VS. INDIRECT COSTS Classification depends on the cost object Cost object: anything for which a separate measurement of costs is desired. E.g: product, service, project, consumer, activity,… Direct Cost: cost that can be allocated to a cost object directly. E.g. direct labor or amortization, materials,… Indirect costs: costs that cannot be allocated to a cost object directly. E.g. office insurance, indirect labor (Cs levels, supervisors), amortization, electricity, marketing… CA - ssegues EXAMPLE DIRECT VS. INDIRECT COSTS (Consumption of) Direct materials DC Salaries and social security of the administrative personnel and IC management (consumption of) office material IC Commercial discounts to clients NC Commissions to the sales personnel for one product DC Gas IC Outsourcing of production activities DEPENDS General publicity IC Financial costs IC / DC Oil for production machinery (the machine produces 1 product) DC Telephone IC Wages and social security of production operatives DC/IC Wages and social security of supervisors IC Several costs IC Rent IC Depreciation on production machinery DC/IC - When we refer to a product it is always DIRECT PRODUCT VS. PERIOD COSTS - Product costs: sum of costs assigned to a product for a specific purpose (manufacturing costs, raw materials, direct labor…) Period costs: costs that are not assigned to products but traded as a cost of the period in which they are incurred (non-manufacturing costs, rent, overheads,…) CA - ssegues EXAMPLE PRODUCT VS. PERIOD COSTS (Consumption of) Direct materials PRODUCT Salaries and social security of the administrative personnel and PERIOD management (consumption of) office material PERIOD Commercial discounts to clients NC Commissions to the sales personnel for one product PRODUCT Gas PERIOD Outsourcing of production activities PRODUCT General publicity PERIOD Financial costs PROD/PER Oil for production machinery (the machine produces 1 product) PRODUCT Telephone PERIOD Wages and social security of production operatives PRODUCT Wages and social security of supervisors PRODUCT Several costs PERIOD Rent PERIOD Depreciation on production machinery PRODUCT CA - ssegues Product costs ! Cost object (COGS (I/S)) Period costs ! other operative expenses (I/S) EXAMPLE 2 - - Costs of a company: o Direct materials 5000 o Direct labor 8000 o Other production costs 2000 o Administration costs 12000 Sales 30.000€ (1000 units of product sold at a market price of 30€/u) o Warehouse 1000 units left of finished products o No opening inventory Required: - Calculate the cost of products sold assuming that “other production costs” are included (COGS) 1. Costs of products sold = 5000+8000+2000 =15.000 2. I/S = Result of the period • 15.000€ / 2000 units = 7.5 €/u i. ! I sold 1000 units x 7,5€ =7.500€ = COGS ii. ! Unsold 1000 units X 7,5€ = 7.500€ = Inventory (BS) Inventories ! always valued at cost !!!!! - Calculate the result of the period Income Statement Sales 30.000 - COGS -7.500 Product costs that I sell = GROSS MARGIN 22.500 - Adm. costs -12.000 Incorporate the period cost that always go to IS = NET PROFIT /RESULT 10.500 CA - ssegues EXAMPLE 3 (D/I VS: PRODUCT/PERIOD) - - The following information is given in a company in period 1: o Manufacturing costs (attributable to a cost object): " Direct labor 400.000 " Direct materials 200.000 " Manufacturing overheads 200.000 o Non-manufacturing costs 300.000 Sales 910.000 70% goods are finished and sold in period 1. 20% are finished but remain in stock. The rest remain unfinished. Do the income statement for period 1: COGS = 400.000 + 200.000 + 200.000 = 800.000€ o o o 70% ! Sold = 560.000€ ! IS – COGS 20% ! finished = 160.000€ ! BS – Inventories – Finished goods 10% ! unfinished goods = 80.000€ ! BS – Inventories – Unfinished goods VALUED AT COST !!! Inventories = 240.000 Sales 910.000 - COGS -560.000 = GROSS MARGIN 350.000 - Non-manufacturing costs -300.000 = NET PROFIT /RESULT OBJECTIVE: DECISION MAKING VARIABLE VS. FIXED COSTS Variable costs: - Costs that varies as the level of activity changes Examples: direct material costs, energy cost to operate machines, sales commissions… Fixed Costs: - Costs that do not vary when activity levels change Examples: high proportion of personnel costs, depreciation of factory building, plant insurance… 50.000 CA - ssegues This graph holds for a relevant range, you establish a minimum relevant and a maximum relevant range STEP FIXED COSTS VS. SEMI-VARIABLE COSTS - - Step fixed costs (also called semi fixed costs): Costs that are fixed within specified activity levels, but eventually increase or decrease by a constant amount at various critical activity levels o Example: personnel costs when additional employees are hired Semi-variable costs: costs that include a fixed and a variable component o Example: Telephone costs: Fixed Rate + variable component EXAMPLE - CLASSIFICATION (Consumption of) Direct materials VC 6.100 Salaries and social security of the administrative personnel FC 6.800 (Consumption of) office material FC 600 Commercial discounts to clients NC 400 Commissions to the sales PERSONNEL VC 7.200 Gas FC/SVC 3.400 Outsourcing of production activities VC 12.200 General publicity FC 14.200 Financial costs FC 3.400 Oil for production machinery VC 100 Telephone SVC 1.900 Wages SFC 18.500 Wages FC/SFC 11.200 Several costs ?? but FC 1.600 Rent FC 82.400 Depreciation on production machinery FC/VC 4.300 Total costs 174.300 CA - ssegues Income Statement REVENUES - Sales Commercial discounts - COGS - 152.000 - 400 Dir. Materials Commissions Outsourcing Oil Wages prod. Oper. Wages supervisors Depreciation = GROSS MARGIN - 151.600 Wages adm. Office material Gas Publicity Financial Telephone Several costs Rent = NET LOSS - 6.100 - 7.200 - 12.200 - 100 - 18.500 - 11.200 - 4.300 92.400 - 6.800 - 600 - 3.400 - 14.200 - 3.400 - 1.900 - 1.600 - 82.400 - 21.900 SUMMARY OF DIRECT, INDIRECT, VARIABLE AND FIXED COSTS (EXAMPLE): CA - ssegues COST TERMS FOR DECISION MAKING Relevant costs: Future costs that differ among alternatives Sunk costs: costs that have been created by a decision made in the past and cannot be changed by any decision made in the future Opportunity costs: costs that measure the opportunity that is lost or sacrificed when the choice of one alternative requires that an other alternative been given up. Incremental costs: additional cots resulting from producing and selling one additional unit of output. Controllable costs: Any cost that can be influenced by a manager’s decisions and actions. CA - ssegues ...