Fundamentals of Productand Service Costing
Cost Management Systems
Cost System
Cost Allocation and Product Costing
Keys to a good cost system:
- The objective of the cost management system
is to provide information about costs relevant
for decision making.
- Oriented to the needs of the decision makers
- Designed so that benefits exceed costs
Fundamental Themes Underlyingthe Design of Cost Systems
- 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.
- The cost system accumulates and reports costs about processes, products, and services.
Reasons to Calculate Productor Service Costs
- For decision making
- For deciding what to sell
- For setting prices
- For knowing the cost of goods sold
- For knowing the cost of inventory
Costing with No Work-in-Process Inventories
Costing with No Work-in-Process Inventories
Costing with No Work-in-Process
Inventories
Costing with No Work-in-Process Inventories
- Baxter Paint begins production on April 1.
How costs and units move through inventories:
Costing with No Work-in-Process Inventories
- It starts and completes production of 100,000 gallons of paint in April and has no ending work-in-process inventory.
What are the costs at the end of the period?
$1,000,000 was added to work-in-process and then transferred out to finished goods.
Since Baxter produced 100,000 gallons of paint, then the cost per gallon of paint is $10.
This is true for the following accounts:
– Raw Materials (RM)
– Work-in-Process (WIP)
– Finished Goods (FG)
FG
Costing with Work-in-Process Inventories
Costing with Work-in-Process
Inventories
How do we cost Baxter’s 20,000 gallons of paint that are only half finished?
20,000 gallons half finished is equivalent to 10,000 gallons finished.
$990,000/100,000 gallons = $9.90 per gallon
90,000 gallons transferred out plus 10,000 equivalent gallons of finished paint equals 100,000 equivalent gallons of paint.
90,000 gallons × $9.90/gallon = $891,000