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CHAPTER
13
Cost Accounting and Reporting
CHAPTER OUTLINE:
I. Cost Management
A. Value Chain Functions
II. Cost Accumulation and Assignment
A. Cost Objects
B. Cost Pools
C. Cost Assignment
III. Cost Classifications
A. Cost Relationship to Product or Activity
2. Indirect cost
B. Costs for Cost Accounting Purposes
1. Product costs
2. Period costs
IV. Cost Accounting Systems
A. Cost Accounting Systems - General
2. Cost of a unit of product
4. Statement of Cost of Goods Manufactured
5. Income Statement
B. Cost Accounting Systems - Job Order Costing, Process Costing, and Hybrid Costing
2. Activity-based management
Chapter 13 Cost Accounting and Reporting
TEACHING/LEARNING OBJECTIVES:
Primary: To have the student understand:
1. The relationship of cost accounting to financial accounting and managerial accounting.
3. The difference between direct and indirect costs and the process for pooling and assigning
indirect costs to cost objects. Specifically, the application of manufacturing overhead to jobs.
5. The process by which costs flow through a manufacturing environment.
Supporting: To have the student understand:
7. The inventory accounts of the manufacturing firm and how the value of the inventory is
determined.
9. The role of activity-based costing in the analysis and assignment of costs.
TEACHING OBSERVATIONS:
1. Students will generally understand how product costs are determined if they first have a solid
understanding of the direct vs. indirect cost classifications. Use several examples of different
2. Use the flow of cost model to emphasize the cost accumulation process. If students can
picture how costs flow through raw material, work in process, finished goods, and cost of
3. Spend time with Problems P13.20, P13.22, and/or Case C13.23 to help students understand
the elements of product cost, and the flow of costs in a manufacturing environment.
Instructor’s Manual / Solutions Manual
ASSIGNMENT OVERVIEW:
NO.
LEARNING
OBJECTIVES
DIFFICULTY &
TIME ESTIMATE
OTHER
COMMENTS
M13.2
5,6
Easy, 5-7 min.
Straight-forward predetermined overhead rate and unit cost
determination.
M13.4
7
Easy, 5-7 min.
Introduction to statement of cost of goods manufactured.
M13.6
9
Med., 7-10 min.
Introduces and explores activity-based costing concepts.
E13.8
2
Easy, 3-5 min.
See 13.7.
E13.10
3,4
Easy, 3-5 min.
Good in-class exercise.
E13.12
4
Easy, 3-5 min.
Good in-class exercise.
E13.14
5
Med., 7-10 min.
See 13.13. Good in-class demonstration problem.
E13.15
5,6
Med., 5-8 min.
Before working through the calculations, ask students: “Why
does manufacturing overhead need to be applied using a
predetermined annualized rate?”
E13.17
5,6
Med., 5-8 min.
Use as a “warm up” problem before covering activity-based
E13.18
5,6
Med., 7-10 min.
Good homework assignment.
E13.19
8
Med., 7-10 min.
Students do not generally have trouble with the absorption
P13.21
9
Med., 10-12 min.
Emphasize the managerial benefits of using the ABC approach in
terms of cost planning and control.
P13.23
8
Med., 7-10 min.
See 13.19.
P13.25
4,5,7
Med.-Hard,
Excel problem. Emphasize the flow of product costs through
P13.26
4,5,7
Med.-Hard,
See 13.25. Good homework assignment.
P13.27
5,7
Med., 10-12 min.
Good in-class demonstration problem.
20-30 min.
C13.30
4,5,7
Med.-Hard,
Group learning problem. Can also be used as a self-study /
C13.31
5,7
Med., 50-60 min.
Internet case. Good group assignment using Intel's Annual
C13.32
9
Easy, 30-40 min.
Internet case. Writing assignment that emphasizes how
Chapter 13 Cost Accounting and Reporting
SOLUTIONS:
M13.1.
Total manufacturing cost = (Direct materials + Direct labor + Manufacturing overhead)
Direct materials …….………………………………………….
$ 18,000
M13.2.
Predetermined overhead application rate
= ($1,800,000 estimated total overhead cost / 720,000 estimated machine hours)
= $2.50 per machine hour
Total cost for 2,000,000 units produced:
Raw materials ……………………………………………………………
$1,450,000
E13.3.
Actual overhead incurred …………………………………………..………
$88,000
Applied overhead (? direct labor hours * $4 per direct labor hour)…….…
(?)
M13.4.
ABC Company
Statement of Cost of Goods Manufactured
Raw materials:
Inventory, beginning ………………………………………
$ 8,000
Purchases ……………….…………………………………
36,000
M13.5.
Variable
Costing
Absorption
Costing
Raw material ………...………………………………………
$ 7.00
$ 7.00
Direct labor…………………………………………………..
10.00
10.00
Variable overhead……………………………………………
8.00
8.00
M13.6.
Activity-based costing rates for each cost driver:
Activity costing rate = Budgeted cost / Budgeted activity
Machining rate = $250,000 / 10,000 hours
Machining rate = $25/machine hour
E13.7.
Business Function
Cost Item
Answer
a. Research & Development
1. Purchase of raw materials
__c__
7. Manufacturing supplies
__c__
9. Purchase of CAD (Computer Aided
Design) software
__b__
E13.8.
Business Function
Cost Item
Answer
a. Research & Development
1. Labor time to repair products under
7. Printing cost of new product
brochures
__d__
9. Training costs for representatives
to staff the customer call center
__f__
E13.9.
Product
Direct
Indirect
Period
Variable
Fixed
Wages of assembly-line workers…
x
_____
_____
x
_____
Depreciation-plant equipment …
_____
x
_____
_____
x
E13.10.
Product
Direct
Indirect
Period
Variable
Fixed
Raw materials …………………
x
_____
_____
x
_____
Staples used to secure packed
boxes of product …………………
_____
x
_____
x
_____
Plant janitors' wages …………….
_____
x
_____
x
x
Order processing clerks' wages …
_____
_____
x
x
_____
Advertising expenses ……………
_____
_____
x
_____
x
Production workers' wages………
x
_____
_____
x
_____
Note: Janitors' wages and electricity probably have mixed cost behavior patterns.
E13.11.
a.
Raw material: cotton/ wool/ rayon used for jersey or material used for team emblems.
b.
Direct labor: wages of production-line machine operator.
E13.12.
a.
Raw material: fabric, zipper, shoulder straps.
b.
Direct labor: wages of sewing machine operator.
E13.13.
a.
Predetermined overhead application rate
= ($408,750 estimated total overhead cost / 54,500 estimated direct labor hours)
= $7.50 per direct labor hour
E13.14.
a.
Predetermined overhead application rate
= ($359,520 estimated total overhead cost / 21,400 estimated machine hours)
= $16.80 per machine hour
E13.15.
a.
9,000 machine hours * $12.70 per machine hour = $114,300 budgeted overhead
b.
Actual overhead incurred …………………………………………………
$121,650
E13.16.
a.
$56,520 overhead applied = (Direct labor hours used * $6.00 predetermined
c.
1) Actual costs were less than anticipated when the predetermined overhead
application rate was calculated, and/or 2) more hours were worked (and thus more
E13.17.
Total cost for 530 ties produced:
