Prepared by
Ms. Dao Nam Giang
Associate Dean of Accounting and Auditing Faculty
(namgiangriver@gmail.com).
OVERVIEW
Class rules
Team learning approach/group - based instructional
format
Assessment
Course materials
Course objects
Learning outcomes
Studying progress
Class rules
Please be on time. (an acceptable margin of 5 minutes)
Kindly turn off all cell phones during the lecture.
Attendance is important and will be taken in different ways.
Class interaction: be prepared for your lessons and actively
are not allowed to leave the lecture room and do other tasks.
Share freely with others your thoughts and feelings in a friendly
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Assessment
2 assignments:
First assignment: be submitted week 9 - Individual
assignment + oral exams and progress tests
Second assignment: be submitted week 16 - Individual
assignment + oral exams and progress tests
Short progress tests during the course:
Focus on 1 or 2 learning outcomes
The result will be used as a substitute for the oral
examinations (done correctly 70% or more of each test > not be questioned on the related outcomes in the oral
exam)
Course materials
Text book
Handouts and exercises (will be send to your class
email)
Incomplete notes so you are required to print out and
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Course objectives
Accounting: provide information about economic
Course objectives
Provide learners with the understanding and ability to
Learning outcomes
1. Be able to analyze cost information within a business:
1.1. Classify different types of cost
1.2. Using different costing methods
1.3. Calculate costs using appropriate techniques
1.4. Analyse cost data using appropriate techniques
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Learning outcomes
3. Be able to prepare forecasts and budgets for a business:
3.1. Explain the purpose and nature of the budgeting process
3.2. Select appropriate budgeting methods for the organization
and its needs.
3.3. Prepare budgets according to the chosen budgeting method.
3.4. Prepare a cash budget
STYDYING PROGRESS
Week
Content
10
11
Chapter 8: Budgeting
12
Chapter 8: Budgeting
13
14
15
Warm up activity
How does the course related to other subjects that you
have studied?
Discuss to form your study group
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Managing financial
resources and decisions
Management
accounting
Financial reporting
Review on MFRS
Chapter 1- 3: different assets and liabilities
Activity 1
Review of basis terms in accounting
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Content
Cost concepts
Direct cost vs indirect cost
Cost behavior
Cost estimation
Manufacturing activity and manufacturing costs
Prepare income statement for manufacturer
Costs classification for decision making/differential
cost analysis
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Cost concepts
Cost sacrificed resource to achieve a specific
objective
Cost accounting: measure and reports financial and
items
Planning
Control
Decision making
Cost concepts
Cost unit: a unit of product or service to which costs can be
related. The cost unit is the basic control unit for costing
purposes. Can you give some examples?
Cost centre /cost pool: a location, or a function, or an
activity or an item of equipment. Each cost centre act as a
collecting place for certain cost before they are analyzed
further.
In production department: the department itself, a machine or
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Cost concepts
Cost centers 1
cost
Cost unit
1
Cost centers 2
Cost centers 3
Cost unit
2
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SHOP
RESTAURANT
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Cost Behavior
Cost behavior: the variability of input costs with
activity undertaken.
Level of activity: amount of work done or the
number of events occurred.
The volume of production in a period
The number of item sold
The value of items sold
The number of invoices issued
.
Cost Behavior
Behavior of Cost (within the relevant range)
Cost
In Total
Per Unit
Variable
Fixed
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Step Costs
A step cost is a cost which is fixed in nature but
only within certain levels of activity:
Cost
Volume
Variable
Cost per minutes talked
Fixed Monthly
Charge
Where:
Variable
Cost per minutes talked
Fixed Monthly
Charge
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Activity 3
Are the following likely to be fixed, variable or mixed
cost?
Telephone bill
Annual salary of the chief accountant
The management accountants annual membership fee
a box
Maintenance Cost
1,000s of Dollars
Y
20
* *
* *
10
* ** *
**
Patient-days in 1,000s
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Maintenance Cost
1,000s of Dollars
Y
20
* *
* *
10
* ** *
**
Patient-days in 1,000s
* *
* *
10
* ** *
**
Use one
data point
to estimate
the total
level of
activity
and the
total cost.
Patient-days in 1,000s
Patient days = 800
$1,000
800
$ 11,000
10,000
$ 1,000
= $1.25/patient
$1.25/patient--day
Y = $10,000 + $1.25X
Total maintenance cost
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Y = $3,400 + $8.00X
$8.00X
Quick Check
Sales salaries and commissions are $10,000 when
80,000 units are sold, and $14,000 when 120,000 units
are sold. Using the high-low method, what is the
variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Quick Check
Sales salaries and commissions are $10,000 when
80,000 units are sold, and $14,000 when 120,000
units are sold. Using the high-low method, what is
the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
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Manufacturing activity
Manufacturing cost
Manufacturers . . .
Buy raw materials.
Produce and sell
finished goods.
MegaLoMart
Finished goodscompleted
goods awaiting
sale.
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Manufacturing activity
Manufacturing consists of activities and processes to
convert raw materials into finished goods.
Manufacturing costs: are the cost to produce a unit
of product and typically classified as:
Direct
Labor
Direct
Materials
Manufacturing
Overhead
The Product
Direct Materials
Raw materials that become an integral part of the product
Direct wages
Wages paid for labour (either as basic hours
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indirect
The basic pay of direct workers (cash paid, tax or other
deductions)
The basic pay of indirect workers
Overtime premium (the premium over basic pay for
working overtime)
Bonus payments under a group bonus payments scheme
Employers National Insurance contributions
Idle time of direct workers.
Work on installation of equipment
Direct expenses
Expenses are incurred on a specific product other than
Production/Manufacturing Overhead
Manufacturing costs cannot be traced directly to
specific units produced.
Indirect materials:
Materials used to support the production process.
Examples: Lubricants and cleaning supplies used in the
automobile assembly plant.
Indirect
labor:
Wages paid to employees who are not directly involved in
production work.
Examples: Maintenance workers, janitors and security guards.
Indirect
expenses:
Rent, rate, Insurance of a factory
Depreciation, fuel, power, repairs and maintenance of plant,
machinery and factory buildings, .
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Direct
Materials
Used
Finished
Goods
Manufacturing
Overhead
Direct
Labor
Goods Sold
MegaLoMart
Nonmanufacturing Costs
Selling
Costs/overhead
Administrative
Costs/overhead
All executive,
organizational, and
clerical costs associated
with the general
management of an
organization..
Inventory
Sale
Balance
Sheet
Income
Statement
Income
Statement
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Quick Check
Which of the following costs would be
considered a period rather than a product cost
in a manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production
facility.
E. Sales commissions.
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
Exercise
The Sloane Company specializes in producing a set of
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$150,000
$32,500
$28,000
$2,000
$97,000
$6,500
$5,000
$19,000
$10,000
$20,500
$3,500
$73,000
$120,000
$16,000
Income statement
Report revenues and expenses => net profit/net loss
Revenue
- Cost of sales (cost of goods sold)
Gross profit
- Selling expenses
- Administrative expenses
Net income
Issue: how to calculate cost of goods sold?
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Inventory Flows
Beginning
balance
Additions
to inventory
Ending
balance
Withdrawals
from
inventory
Manufacturing Company
Cost of goods sold:
Beg. Finished goods inv.
+ Cost of goods manufactured
Goods available for sale
- Ending finished goods inventory
= Cost of goods sold
14,200
234,150
$ 248,350
(12,100)
$ 236,250
+
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
As
items are removed Work
from raw
Costs
In Process
materials inventory and placed
into the production process,
they are called direct
materials.
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Manufacturing
Costs
Work
Conversion
In Process
costs
are costs
incurred to
convert the
direct material
into a finished
product.
Direct materials
+ Direct labor
+ Mfg. overhead
= Total manufacturing
costs
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
All manufacturing costs
incurred
process inventory
during the period are
added
to the
= Cost
of goods
manufactured.
beginning balance of work
in process.
Manufacturing
Costs
Beginning raw
Direct materials
materials inventory
+ Direct labor
+ Raw materials
+ Mfg. overhead
purchased
= Total manufacturing
= Raw materials
costs
available for use
in production
Ending raw materials
inventory
Costs
associated with the goods that
= Raw materials used
areincompleted
during the period are
production
Work
In Process
+
=
Beginning work in
process inventory
Total manufacturing
costs
Total work in
process for the
period
Ending work in
process inventory
Cost of goods
manufactured.
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Finished Goods
Beginning work in
process inventory
+ Manufacturing costs
for the period
= Total work in process
for the period
Ending work in
process inventory
= Cost of goods
manufactured
Beginning finished
goods inventory
+ Cost of goods
manufactured
= Cost of goods
available for sale
- Ending finished
goods inventory
Cost of goods
sold
Balance Sheet
Inventories
Material Purchases
Raw Materials
Direct Labor
Work in
Process
Manufacturing
Overhead
Selling and
Administrative
Finished
Goods
Period Costs
Income
Statement
Expenses
Cost of
Goods
Sold
Selling and
Administrative
Quick Check
Beginning raw materials inventory was $32,000.
During the month, $276,000 of raw material was
purchased. A count at the end of the month
revealed that $28,000 of raw material was still
present. What is the cost of direct material
used?
A.
$276,000
B.
$272,000
C.
$280,000
D.
$ 2,000
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Quick Check
Direct materials used in production totaled
$280,000. Direct labor was $375,000 and factory
overhead was $180,000. What were total
manufacturing costs incurred for the month?
A.
$555,000
B.
$835,000
C.
$655,000
D.
Cannot be determined.
Quick Check
Beginning work in process was $125,000.
Manufacturing costs incurred for the month
were $835,000. There were $200,000 of
partially finished goods remaining in work in
process inventory at the end of the month.
What was the cost of goods manufactured
during the month?
A.
$1,160,000
B.
$ 910,000
C.
$ 760,000
D.
Cannot be determined.
Quick Check
Beginning finished goods inventory was
$130,000. The cost of goods manufactured for the
month was $760,000. The ending finished goods
inventory was $150,000. What was the cost of
goods sold for the month?
A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000.
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FINISHED GOODS
Period Cost
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Relevant cost
Relevant cost is a future cashflow arising as a direct
consequence of a decision:
Future cost: cost incurred (paid or not yet paid) is
irrelevant.
Cashflows:
Arises as a direct consequence of a decision: costs
branch,..
Example 1
JamCo currently sells 100,000 units of its
product. The company has revenue and costs
as shown below:
Sales
Direct materials
Direct labor
Factory overhead
Selling expenses
Administrative expenses
Total expenses
Operating income
Per Unit
$ 10.00
3.50
2.20
1.10
1.40
0.80
$
9.00
$
1.00
$
$
Total
1,000,000
350,000
220,000
110,000
140,000
80,000
900,000
100,000
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Example 2
OserCo has 10,000 defective units that
cost $1.00 each to make. The units can be
scrapped now for $.40 each or rebuilt at an
additional cost of $.80 per unit.
If rebuilt, the units can be sold for the normal
selling price of $1.50 each. Rebuilding the 10,000
defective units will prevent the production of
10,000 new units that would also sell for $1.50.
Predicting
Cost
Behavior
Assigning
Costs to Cost
Objects
Decision
Making
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