Overview
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Product costing
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Different costs for different purposes
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Designing product costing systems
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Flow of costs in manufacturing businesses
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Allocating overhead costs to products
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Accounting for manufacturing overhead
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Types of product costing systems
Job costing, Process costing
In Lecture 3 Part A you will be able to:
In Lecture 3 Part A you will be able to:
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•Explain the role of product costing systemsExplain the role of product costing systems
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•Describe why managers need different measures of Describe why managers need different measures of product costs for different purposes.product costs for different purposes.
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•Outline the flow of costs through the manufacturing Outline the flow of costs through the manufacturing accounts used in product costing.accounts used in product costing.
Learning Objectives
Learning Objectives
Product Costing
Product Costing
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•Product costing systemsProduct costing systems
-Accumulate productAccumulate product–related costs to assign to the related costs to assign to the organisation’s final productsorganisation’s final products
-ProductProduct–related costs are called production costsrelated costs are called production costs
Product Costing System
Product Costing System
Relevance of Product Cost Measures to Management
Relevance of Product Cost Measures to Management DecisionsDecisions
Different Product Costs for Different Purposes
Different Product Costs for Different Purposes
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•Current or future product costs?Current or future product costs?
-Current product costs as recorded in the general Current product costs as recorded in the general ledgerledger
-Estimates of future product costsEstimates of future product costs
-Current product costs are relevant for inventory Current product costs are relevant for inventory valuation. Future product costs may be relevant valuation. Future product costs may be relevant for input into some decisionsfor input into some decisions
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•Consider what the information is going to be Consider what the information is going to be used for and how frequently it is requiredused for and how frequently it is required
Designing Product Costing Systems
Designing Product Costing Systems
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•Identify the managers’ needsIdentify the managers’ needs
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•Identify where product cost information may Identify where product cost information may come fromcome from
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•Cost and benefits of providing various types Cost and benefits of providing various types of cost estimates of cost estimates
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•Businesses sometimes use product costs Businesses sometimes use product costs developed for external reporting for developed for external reporting for managerial decision makingmanagerial decision making
Flow of Costs in Manufacturing Businesses
Flow of Costs in Manufacturing Businesses
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•For inventory valuationFor inventory valuationin external financial in external financial reports, only reports, only manufacturing costs are manufacturing costs are assigned to productsassigned to products, as required by , as required by Australian accounting standardsAustralian accounting standards
Flow of Costs in Manufacturing Businesses (cont.)
Flow of Costs in Manufacturing Businesses (cont.)
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•Manufacturing costs consist of three Manufacturing costs consist of three componentscomponents
-Direct materialDirect material
-Direct labourDirect labour
-Manufacturing overheadManufacturing overhead
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•Manufacturing costs flow through several Manufacturing costs flow through several ledger accountsledger accounts
Flow of Costs in Manufacturing Businesses (cont.)
Flow of Costs in Manufacturing Businesses (cont.)
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•Australian accounting standards require that Australian accounting standards require that upstream and downstream costsupstream and downstream costsare are expensed expensed in the period in which they are incurredin the period in which they are incurred
Flow of Costs Through Manufacturing Accounts
Flow of Costs Through Manufacturing Accounts
In Lecture 3 Part A you will be able to:
In Lecture 3 Part A you will be able to:
•
•Explain the role of product costing systemsExplain the role of product costing systems
•
•Describe why managers need different measures of Describe why managers need different measures of product costs for different purposes.product costs for different purposes.
•
•Outline the flow of costs through the manufacturing Outline the flow of costs through the manufacturing accounts used in product costing.accounts used in product costing.
Learning Objectives
Learning Objectives
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