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msmarco_v2.1_doc_00_9882657#13_14593255
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http://2012books.lardbucket.org/books/a-primer-on-social-problems/s13-02-sociological-perspectives-on-t.html
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Sociological Perspectives on the Family
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10.2
Sociological Perspectives on the Family
10.2 Sociological Perspectives on the Family
Learning Objective
Social Functions of the Family
The Family and Conflict
Applying Social Research
Families and Social Interaction
Key Takeaways
|
In contrast, wealthier parents keep their children very busy in these activities in a pattern that sociologist Annette Lareau calls concerted cultivation. These children’s involvement in these activities provides them various life skills that help enhance their performance in school and later in the workplace. Fourth, low-income children grow up in low-income neighborhoods, which often have inadequate schools and many other problems, including toxins such as lead paint, that impair a child’s development. In contrast, says Furstenberg, children from wealthier families “are very likely to attend better schools and live in better neighborhoods. It is as if the playing field for families is tilted in ways that are barely visible to the naked eye.” Fifth, low-income families are less able to afford to send a child to college, and they are more likely to lack the social contacts that wealthier parents can use to help their child get a good job after college. For all these reasons, social class profoundly shapes how children fare from conception through early adulthood and beyond. Because this body of research documents many negative consequences of living in a low-income family, it reinforces the need for wide-ranging efforts to help such families. Sources: Bandy, Andrews, & Moore, 2012;
| 8,499 | 9,801 |
msmarco_v2.1_doc_00_9882657#14_14595116
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http://2012books.lardbucket.org/books/a-primer-on-social-problems/s13-02-sociological-perspectives-on-t.html
|
Sociological Perspectives on the Family
|
10.2
Sociological Perspectives on the Family
10.2 Sociological Perspectives on the Family
Learning Objective
Social Functions of the Family
The Family and Conflict
Applying Social Research
Families and Social Interaction
Key Takeaways
|
Fifth, low-income families are less able to afford to send a child to college, and they are more likely to lack the social contacts that wealthier parents can use to help their child get a good job after college. For all these reasons, social class profoundly shapes how children fare from conception through early adulthood and beyond. Because this body of research documents many negative consequences of living in a low-income family, it reinforces the need for wide-ranging efforts to help such families. Sources: Bandy, Andrews, & Moore, 2012; Furstenberg, 2010; Lareau, 2010 Bandy, T., Andrews, K.M., & Moore, K.A. (2012). Disadvantaged families and child outcomes: The importance of emotional support for mothers. Washington, DC:
| 9,252 | 9,989 |
msmarco_v2.1_doc_00_9882657#15_14596391
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http://2012books.lardbucket.org/books/a-primer-on-social-problems/s13-02-sociological-perspectives-on-t.html
|
Sociological Perspectives on the Family
|
10.2
Sociological Perspectives on the Family
10.2 Sociological Perspectives on the Family
Learning Objective
Social Functions of the Family
The Family and Conflict
Applying Social Research
Families and Social Interaction
Key Takeaways
|
Furstenberg, 2010; Lareau, 2010 Bandy, T., Andrews, K.M., & Moore, K.A. (2012). Disadvantaged families and child outcomes: The importance of emotional support for mothers. Washington, DC: Child Tren
| 9,802 | 10,000 |
msmarco_v2.1_doc_00_9896478#0_14597129
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Understand the concept of an equivalent unit. Question: The beginning of this chapter describes process costing and the flow of costs through accounts used in a process costing system. The challenge is determining the unit cost of products being transferred out of each departmental work-in-process inventory account. We start the process of determining unit cost information with an important concept, the concept of equivalent units. What are equivalent units, and how are equivalent units calculated? Answer: Units of product in work-in-process inventory are assumed to be partially completed; otherwise, the units would not be in work-in-process inventory. Process costing requires partially completed units in ending work-in-process inventory to be converted to the equivalent completed units (called equivalent units ).
| 0 | 906 |
msmarco_v2.1_doc_00_9896478#1_14598439
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
What are equivalent units, and how are equivalent units calculated? Answer: Units of product in work-in-process inventory are assumed to be partially completed; otherwise, the units would not be in work-in-process inventory. Process costing requires partially completed units in ending work-in-process inventory to be converted to the equivalent completed units (called equivalent units ). Equivalent units
Partially completed units converted to the equivalent completed units; calculated by multiplying the number of physical units on hand by the percentage of completion of the physical units. are calculated by multiplying the number of physical (or actual) units on hand by the percentage of completion of the units. If the physical units are 100 percent complete, equivalent units will be the same as the physical units. However, if the physical units are not 100 percent complete, the equivalent units will be less than the physical units.
| 517 | 1,462 |
msmarco_v2.1_doc_00_9896478#2_14599789
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Equivalent units
Partially completed units converted to the equivalent completed units; calculated by multiplying the number of physical units on hand by the percentage of completion of the physical units. are calculated by multiplying the number of physical (or actual) units on hand by the percentage of completion of the units. If the physical units are 100 percent complete, equivalent units will be the same as the physical units. However, if the physical units are not 100 percent complete, the equivalent units will be less than the physical units. For example, if four physical units of product are 50 percent complete at the end of the period, an equivalent of two units has been completed (2 equivalent units = 4 physical units × 50 percent). The formula used to calculate equivalent units is as follows: Equivalent units = Number of physical units × Percentage of completion
Figure 4.3 "Concept of Equivalent Units" provides an example of the equivalent unit concept in which four desks, 50 percent complete, are the equivalent of two completed desks. Figure 4.3 Concept of Equivalent Units
© Thinkstock
Question: With the concept of equivalent units now in hand, we can calculate equivalent units for the three product costs—direct materials, direct labor, and manufacturing overhead.
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msmarco_v2.1_doc_00_9896478#3_14601515
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
For example, if four physical units of product are 50 percent complete at the end of the period, an equivalent of two units has been completed (2 equivalent units = 4 physical units × 50 percent). The formula used to calculate equivalent units is as follows: Equivalent units = Number of physical units × Percentage of completion
Figure 4.3 "Concept of Equivalent Units" provides an example of the equivalent unit concept in which four desks, 50 percent complete, are the equivalent of two completed desks. Figure 4.3 Concept of Equivalent Units
© Thinkstock
Question: With the concept of equivalent units now in hand, we can calculate equivalent units for the three product costs—direct materials, direct labor, and manufacturing overhead. Why do we calculate equivalent units separately for direct materials, direct labor, and manufacturing overhead? Answer: Equivalent units in work in process are often different for direct materials, direct labor, and manufacturing overhead because these three components of production may enter the process at varying stages. For example, in the Assembly department at Desk Products, Inc., direct materials enter production early in the process while direct labor and overhead are used throughout the process. ( Imagine asking workers to assemble desks without materials!)
| 1,462 | 2,774 |
msmarco_v2.1_doc_00_9896478#4_14603257
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Why do we calculate equivalent units separately for direct materials, direct labor, and manufacturing overhead? Answer: Equivalent units in work in process are often different for direct materials, direct labor, and manufacturing overhead because these three components of production may enter the process at varying stages. For example, in the Assembly department at Desk Products, Inc., direct materials enter production early in the process while direct labor and overhead are used throughout the process. ( Imagine asking workers to assemble desks without materials!) Thus equivalent units must be calculated for each of the three production costs. ( Note that direct labor and manufacturing overhead are sometimes combined in a category called conversion costs, which assumes both are added to the process at the same time. In this text, we keep direct labor and manufacturing overhead separate.) The next section presents how we use the equivalent unit concept for product costing purposes. Be sure you understand the concept of equivalent units before moving on.
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msmarco_v2.1_doc_00_9896478#5_14604731
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Thus equivalent units must be calculated for each of the three production costs. ( Note that direct labor and manufacturing overhead are sometimes combined in a category called conversion costs, which assumes both are added to the process at the same time. In this text, we keep direct labor and manufacturing overhead separate.) The next section presents how we use the equivalent unit concept for product costing purposes. Be sure you understand the concept of equivalent units before moving on. Business in Action 4.3
© Thinkstock
Calculating Full-Time Equivalent Students
The concept of an equivalent unit can be applied to determine the number of full-time equivalent students (FTES) at a school. Colleges use FTES data to plan and make decisions about course offerings, staffing, and facility needs. Although having information about the number of students enrolled (the headcount) is helpful, headcount data do not provide an indication of whether the students are full time or part time. Clearly, full-time students take more classes each term and generally use more resources than part-time students. Thus administrators often prefer to convert enrollment data to FTES.
| 2,775 | 3,952 |
msmarco_v2.1_doc_00_9896478#6_14606322
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Business in Action 4.3
© Thinkstock
Calculating Full-Time Equivalent Students
The concept of an equivalent unit can be applied to determine the number of full-time equivalent students (FTES) at a school. Colleges use FTES data to plan and make decisions about course offerings, staffing, and facility needs. Although having information about the number of students enrolled (the headcount) is helpful, headcount data do not provide an indication of whether the students are full time or part time. Clearly, full-time students take more classes each term and generally use more resources than part-time students. Thus administrators often prefer to convert enrollment data to FTES. Using a simple example to explain this concept, assume 30 students attend school and each takes half a full load of classes. The headcount is 30. However, this is the equivalent of 15 full-time students, or 15 FTES. To apply this to the real world, let’s look at the enrollment data for Sierra College, a community college located near Sacramento, California. During a recent semester, the student headcount in a specific department at Sierra College was 8,190.
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msmarco_v2.1_doc_00_9896478#7_14607882
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Using a simple example to explain this concept, assume 30 students attend school and each takes half a full load of classes. The headcount is 30. However, this is the equivalent of 15 full-time students, or 15 FTES. To apply this to the real world, let’s look at the enrollment data for Sierra College, a community college located near Sacramento, California. During a recent semester, the student headcount in a specific department at Sierra College was 8,190. Because a large number of students in the department were part time, the full-time equivalent number of students totaled 3,240. Source: Based on enrollment data from Sierra College. Key Takeaways
When units of work-in-process (WIP) inventory exist at the end of the reporting period, process costing requires that these partially completed units be converted to the equivalent completed units (called equivalent units). The equation used to calculate equivalent completed units is as follows:
| 3,952 | 4,907 |
msmarco_v2.1_doc_00_9896478#8_14609247
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-03-determining-equivalent-units.html
|
Determining Equivalent Units
|
4.3
Determining Equivalent Units
4.3 Determining Equivalent Units
Learning Objective
Business in Action 4.3
Key Takeaways
|
Because a large number of students in the department were part time, the full-time equivalent number of students totaled 3,240. Source: Based on enrollment data from Sierra College. Key Takeaways
When units of work-in-process (WIP) inventory exist at the end of the reporting period, process costing requires that these partially completed units be converted to the equivalent completed units (called equivalent units). The equation used to calculate equivalent completed units is as follows: Equivalent units = Number of physical units × Percentage of completion
Because direct materials, direct labor, and manufacturing overhead typically enter the production process at different stages, equivalent units must be calculated separately for each of these production costs.
| 4,415 | 5,188 |
msmarco_v2.1_doc_00_9902081#0_14610432
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
How Is Process Costing Used to Track Production Costs? Chapter 4 How Is Process Costing Used to Track Production Costs? © Thinkstock
Ann Watkins owns and operates a company that mass produces wood desks used in classrooms throughout the world. Ann’s company, Desk Products, Inc., maintains an advantage over its competitors by producing one desk in large quantities—4,000 to 8,000 desks per month—using a universally accepted design. This enables the company to buy materials in bulk, often leading to volume price discounts from suppliers. Because the exact same desk is produced for all customers, Desk Products purchases precut wood materials from suppliers. As a result, Desk Products can limit the production process to two processing departments—Assembly and Finishing. The Assembly department requisitions precut materials and hardware from the raw materials storeroom, assembles each desk, and moves the assembled desks to the Finishing department. The Finishing department sands and paints each desk and moves completed desks to the finished goods warehouse. A new competitor recently began producing a similar desk, and Ann is concerned about whether Desk Products’ production costs are reasonable.
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msmarco_v2.1_doc_00_9902081#1_14613163
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Because the exact same desk is produced for all customers, Desk Products purchases precut wood materials from suppliers. As a result, Desk Products can limit the production process to two processing departments—Assembly and Finishing. The Assembly department requisitions precut materials and hardware from the raw materials storeroom, assembles each desk, and moves the assembled desks to the Finishing department. The Finishing department sands and paints each desk and moves completed desks to the finished goods warehouse. A new competitor recently began producing a similar desk, and Ann is concerned about whether Desk Products’ production costs are reasonable. In particular, Ann is concerned about the costs in the Assembly department since this department is responsible for the majority of the company’s production costs. Ann talks with the accountant at Desk Products, John Fuller, to investigate. Ann: John, as you know, we have a new competitor that is aggressively going after our customers. It looks as if we will have to focus on keeping costs low to compete.
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msmarco_v2.1_doc_00_9902081#2_14615747
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
In particular, Ann is concerned about the costs in the Assembly department since this department is responsible for the majority of the company’s production costs. Ann talks with the accountant at Desk Products, John Fuller, to investigate. Ann: John, as you know, we have a new competitor that is aggressively going after our customers. It looks as if we will have to focus on keeping costs low to compete. The Assembly department is my biggest concern, and it would help if I knew the cost of each desk that goes through this department. John: Although we don’t track production costs for each desk individually, we do use a process costing system that assigns costs to each batch of desks produced. This system enables us to calculate a cost per unit as the products move through the Assembly department. Ann:
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msmarco_v2.1_doc_00_9902081#3_14618064
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
The Assembly department is my biggest concern, and it would help if I knew the cost of each desk that goes through this department. John: Although we don’t track production costs for each desk individually, we do use a process costing system that assigns costs to each batch of desks produced. This system enables us to calculate a cost per unit as the products move through the Assembly department. Ann: Excellent! Can you get me the cost information for the Assembly department for last month? John: Sure, I’ll put together a production cost report for you by the end of the week. We return to Desk Products, Inc., throughout the chapter to explain how process costing systems work.
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msmarco_v2.1_doc_00_9902081#4_14620253
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Excellent! Can you get me the cost information for the Assembly department for last month? John: Sure, I’ll put together a production cost report for you by the end of the week. We return to Desk Products, Inc., throughout the chapter to explain how process costing systems work. 4.1 Comparison of Job Costing with Process Costing
Learning Objective
Compare and contrast job costing and process costing. Question: A process costing system
A system of assigning costs used by companies that produce similar or identical units of product in batches employing a consistent process. is used by companies that produce similar or identical units of product in batches employing a consistent process. Examples of companies that use process costing include Chevron Corporation (petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint).
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msmarco_v2.1_doc_00_9902081#5_14622612
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
4.1 Comparison of Job Costing with Process Costing
Learning Objective
Compare and contrast job costing and process costing. Question: A process costing system
A system of assigning costs used by companies that produce similar or identical units of product in batches employing a consistent process. is used by companies that produce similar or identical units of product in batches employing a consistent process. Examples of companies that use process costing include Chevron Corporation (petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint). A job costing system
A system of assigning costs used by companies that produce unique products or jobs. is used by companies that produce unique products or jobs. Examples of companies that use job costing systems include Boeing (airplanes), Lockheed Martin (advanced technology systems), and Deloitte & Touche (accounting). What are the similarities and differences between job costing and process costing systems? Answer:
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msmarco_v2.1_doc_00_9902081#6_14625112
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http://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-costing-used-to.html
|
How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
A job costing system
A system of assigning costs used by companies that produce unique products or jobs. is used by companies that produce unique products or jobs. Examples of companies that use job costing systems include Boeing (airplanes), Lockheed Martin (advanced technology systems), and Deloitte & Touche (accounting). What are the similarities and differences between job costing and process costing systems? Answer: Although these systems have marked differences, they are also similar in many ways. ( As you read through this section, refer to Chapter 1 "What Is Managerial Accounting?" for a review of important terms if necessary.) Recall the three inventory accounts that accountants use to track product cost information—raw materials inventory, work-in-process inventory, and finished goods inventory. These three inventory accounts are used to record product cost information for both process costing and job costing systems.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Although these systems have marked differences, they are also similar in many ways. ( As you read through this section, refer to Chapter 1 "What Is Managerial Accounting?" for a review of important terms if necessary.) Recall the three inventory accounts that accountants use to track product cost information—raw materials inventory, work-in-process inventory, and finished goods inventory. These three inventory accounts are used to record product cost information for both process costing and job costing systems. However, several work-in-process inventory accounts are typically used in a process costing system to track the flow of product costs through each production department. Thus each department has its own work-in-process inventory account. ( For the purposes of this chapter, assume each department represents a production process. This explains the term process costing because we are tracking costs by process.) The sum of all work-in-process inventory accounts represents total work in process for the company.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
However, several work-in-process inventory accounts are typically used in a process costing system to track the flow of product costs through each production department. Thus each department has its own work-in-process inventory account. ( For the purposes of this chapter, assume each department represents a production process. This explains the term process costing because we are tracking costs by process.) The sum of all work-in-process inventory accounts represents total work in process for the company. Recall the three components of product costs—direct materials, direct labor, and manufacturing overhead. Assigning these product costs to individual products remains an important goal for process costing, just as with job costing. However, instead of assigning product costs to individual jobs (shown on a job cost sheet), process costing assigns these costs to departments (shown on a departmental production cost report). Figure 4.1 "A Comparison of Cost Flows for Job Costing and Process Costing" shows how product costs flow through accounts for job costing and process costing systems. Table 4.1 "A Comparison of Process Costing and Job Costing" outlines the similarities and differences between these two costing systems.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Recall the three components of product costs—direct materials, direct labor, and manufacturing overhead. Assigning these product costs to individual products remains an important goal for process costing, just as with job costing. However, instead of assigning product costs to individual jobs (shown on a job cost sheet), process costing assigns these costs to departments (shown on a departmental production cost report). Figure 4.1 "A Comparison of Cost Flows for Job Costing and Process Costing" shows how product costs flow through accounts for job costing and process costing systems. Table 4.1 "A Comparison of Process Costing and Job Costing" outlines the similarities and differences between these two costing systems. Review these illustrations carefully before moving on to the next section. Figure 4.1 A Comparison of Cost Flows for Job Costing and Process Costing
Table 4.1 A Comparison of Process Costing and Job Costing
Product Costs
Similarities
Product costs consist of direct materials, direct labor, and manufacturing overhead. Differences
Process Costing
Job Costing
Product costs are assigned to departments (or processes). Product costs are assigned to jobs. Unit Cost Information
Similarities
Unit cost information is needed by management for decision-making purposes.
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How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Review these illustrations carefully before moving on to the next section. Figure 4.1 A Comparison of Cost Flows for Job Costing and Process Costing
Table 4.1 A Comparison of Process Costing and Job Costing
Product Costs
Similarities
Product costs consist of direct materials, direct labor, and manufacturing overhead. Differences
Process Costing
Job Costing
Product costs are assigned to departments (or processes). Product costs are assigned to jobs. Unit Cost Information
Similarities
Unit cost information is needed by management for decision-making purposes. Differences
Process Costing
Job Costing
Unit cost information comes from the departmental production cost report. Unit cost information comes from the job cost sheet. Inventory Accounts
Similarities
Inventory accounts include raw materials inventory, work-in-process inventory, and finished goods inventory. Differences
Process Costing
Job Costing
Several different work-in-process inventory accounts are used—one for each department (or process). One work-in-process inventory account is used—job cost sheets track costs assigned to each job.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Differences
Process Costing
Job Costing
Unit cost information comes from the departmental production cost report. Unit cost information comes from the job cost sheet. Inventory Accounts
Similarities
Inventory accounts include raw materials inventory, work-in-process inventory, and finished goods inventory. Differences
Process Costing
Job Costing
Several different work-in-process inventory accounts are used—one for each department (or process). One work-in-process inventory account is used—job cost sheets track costs assigned to each job. Business in Action 4.1
Source: Photo courtesy of Simon Berry, http://www.flickr.com/photos/bezznet/3105213435/.
The Production Process at Coca-Cola
The Coca-Cola Company is one of the world’s largest producers of nonalcoholic beverages. According to the company, more than 11,000 of its soft drinks are consumed every second of every day. In the first stage of production, Coca-Cola mixes direct materials—water, refined sugar, and secret ingredients—to make the liquid for its beverages. The second stage includes filling cleaned and sanitized bottles before placing a cap on each bottle.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Business in Action 4.1
Source: Photo courtesy of Simon Berry, http://www.flickr.com/photos/bezznet/3105213435/.
The Production Process at Coca-Cola
The Coca-Cola Company is one of the world’s largest producers of nonalcoholic beverages. According to the company, more than 11,000 of its soft drinks are consumed every second of every day. In the first stage of production, Coca-Cola mixes direct materials—water, refined sugar, and secret ingredients—to make the liquid for its beverages. The second stage includes filling cleaned and sanitized bottles before placing a cap on each bottle. In the third stage, filled bottles are inspected, labeled, and packaged. Work in process begins with the first stage of production (mixing and blending), continues with the second stage (bottling), and ends with the third stage (inspecting, labeling, and packaging). When products have gone through all three stages of production, they are shipped to a warehouse, and the costs are entered into finished goods inventory. Once products are delivered to retail stores, product costs are transferred from finished goods inventory to cost of goods sold. Source:
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
In the third stage, filled bottles are inspected, labeled, and packaged. Work in process begins with the first stage of production (mixing and blending), continues with the second stage (bottling), and ends with the third stage (inspecting, labeling, and packaging). When products have gone through all three stages of production, they are shipped to a warehouse, and the costs are entered into finished goods inventory. Once products are delivered to retail stores, product costs are transferred from finished goods inventory to cost of goods sold. Source: Coca-Cola Company, “Home Page,” http://www2.coca-cola.com/ourcompany/bottlingtoday. Key Takeaway
A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. A job costing system is used by companies that produce unique products or jobs. Process costing systems track costs by processing department, whereas job costing systems track costs by job. 4.2 Product Cost Flows in a Process Costing System
Learning Objective
Identify how product costs flow through accounts using process costing.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Coca-Cola Company, “Home Page,” http://www2.coca-cola.com/ourcompany/bottlingtoday. Key Takeaway
A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. A job costing system is used by companies that produce unique products or jobs. Process costing systems track costs by processing department, whereas job costing systems track costs by job. 4.2 Product Cost Flows in a Process Costing System
Learning Objective
Identify how product costs flow through accounts using process costing. As products physically move through the production process, the product costs associated with these products move through several important accounts as shown back in Figure 4.1 "A Comparison of Cost Flows for Job Costing and Process Costing". In this section, we present a detailed look at how product costs flow through accounts using a process costing system. Later in the chapter, we explain how dollar amounts are established for product costs that flow through the accounts. As you review each of the following cost flows for a process costing system, remember that product costs are now tracked by department rather than by job. Direct Materials
Question:
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How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
As products physically move through the production process, the product costs associated with these products move through several important accounts as shown back in Figure 4.1 "A Comparison of Cost Flows for Job Costing and Process Costing". In this section, we present a detailed look at how product costs flow through accounts using a process costing system. Later in the chapter, we explain how dollar amounts are established for product costs that flow through the accounts. As you review each of the following cost flows for a process costing system, remember that product costs are now tracked by department rather than by job. Direct Materials
Question: In a process costing setting, direct materials are often used by several production departments. How do we record direct materials costs for each production department? Answer: When direct materials are requisitioned from the raw materials storeroom, a journal entry is made to reduce the raw materials inventory account and increase the appropriate work-in-process inventory account. For example, assume the Assembly department of Desk Products, Inc., requisitions direct materials to be used in production.
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How Is Process Costing Used to Track Production Costs?
|
Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
In a process costing setting, direct materials are often used by several production departments. How do we record direct materials costs for each production department? Answer: When direct materials are requisitioned from the raw materials storeroom, a journal entry is made to reduce the raw materials inventory account and increase the appropriate work-in-process inventory account. For example, assume the Assembly department of Desk Products, Inc., requisitions direct materials to be used in production. The journal entry to reflect this is as follows: The use of direct materials is not limited to one production department. Suppose the Finishing department requisitions direct materials for production. The journal entry to reflect this is as follows: Notice that two different work-in-process inventory accounts are used to track production costs—one for each department.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
The journal entry to reflect this is as follows: The use of direct materials is not limited to one production department. Suppose the Finishing department requisitions direct materials for production. The journal entry to reflect this is as follows: Notice that two different work-in-process inventory accounts are used to track production costs—one for each department. Direct Labor
Question: Each production department typically has a direct labor work force. How do we record direct labor costs for each production department? Answer: Direct labor costs are recorded directly in the production department’s work-in-process inventory account.
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How Is Process Costing Used to Track Production Costs?
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Chapter 4
How Is Process Costing Used to Track Production Costs?
Chapter 4 How Is Process Costing Used to Track Production Costs?
4.1 Comparison of Job Costing with Process Costing
Business in Action 4.1
Key Takeaway
4.2 Product Cost Flows in a Process Costing System
Direct Materials
Direct Labor
Manufacturing Overhead
Transferred-In Costs
Finished Goods
Cost of Goods Sold
Business in Action 4.2
Key Takeaway
4.3 Determining Equivalent Units
Business in Action 4.3
Key Takeaways
4.4 The Weighted Average Method
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
The Four Key Steps of Assigning Costs
Step 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and overhead).
Step 3. Calculate the cost per equivalent unit.
Key Equation
Journalizing Costs Assigned to Units Completed and Transferred
Business in Action 4.4
Key Takeaways
4.5 Preparing a Production Cost Report
How Do Managers Use Production Cost Report Information?
Beware of Fixed Costs
Key Takeaway
Computer Application
End-of-Chapter Exercises
|
Direct Labor
Question: Each production department typically has a direct labor work force. How do we record direct labor costs for each production department? Answer: Direct labor costs are recorded directly in the production department’s work-in-process inventory account. Assume direct labor costs are incurred by the Assembly department. The journal entry to reflect this is as follows: As with direct materials, the use of direct labor is not limited to one production department. Suppose direct labor costs are incurred by the Finishing department. The journal entry to
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Calculate and analyze variable manufacturing overhead variances. Question: Similar to direct materials and direct labor variances, variable manufacturing overhead variance analysis involves two separate variances. What are the two variances used to analyze the difference between actual variable overhead costs and standard variable overhead costs? Answer: The two variances used to analyze this difference are the spending variance and efficiency variance. The variable overhead spending variance
The difference between actual costs for variable overhead and budgeted costs based on the standards. is the difference between actual costs for variable overhead and budgeted costs based on the standards. For a company that allocates variable manufacturing overhead to products based on direct labor hours, the variable overhead efficiency variance
The difference between the actual activity level in the allocation base (often direct labor hours or machine hours) and the budgeted activity level in the allocation base according to the standards. is the difference between the number of direct labor hours actually worked and what should have been worked based on the standards.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
The two variances used to analyze this difference are the spending variance and efficiency variance. The variable overhead spending variance
The difference between actual costs for variable overhead and budgeted costs based on the standards. is the difference between actual costs for variable overhead and budgeted costs based on the standards. For a company that allocates variable manufacturing overhead to products based on direct labor hours, the variable overhead efficiency variance
The difference between the actual activity level in the allocation base (often direct labor hours or machine hours) and the budgeted activity level in the allocation base according to the standards. is the difference between the number of direct labor hours actually worked and what should have been worked based on the standards. At Jerry’s Ice Cream, the actual data for the year are as follows: Sales volume
210,000 units
Direct labor hours worked
18,900 hours
Total cost of variable overhead
$100,000
Recall from Figure 10.1 "Standard Costs at Jerry’s Ice Cream" that the variable overhead standard rate for Jerry’s is $5 per direct labor hour and the standard direct labor hours is 0.10 per unit. Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream" shows how to calculate the variable overhead spending and efficiency variances given the actual results and standards information. Review this figure carefully before moving on to the next section where these calculations are explained in detail. Figure 10.8 Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream
Note:
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
At Jerry’s Ice Cream, the actual data for the year are as follows: Sales volume
210,000 units
Direct labor hours worked
18,900 hours
Total cost of variable overhead
$100,000
Recall from Figure 10.1 "Standard Costs at Jerry’s Ice Cream" that the variable overhead standard rate for Jerry’s is $5 per direct labor hour and the standard direct labor hours is 0.10 per unit. Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream" shows how to calculate the variable overhead spending and efficiency variances given the actual results and standards information. Review this figure carefully before moving on to the next section where these calculations are explained in detail. Figure 10.8 Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream
Note: AH = Actual hours of direct labor. ( This measure will depend on the allocation base that the company uses. Jerry’s uses direct labor hours to allocate variable manufacturing overhead, so AH refers to actual direct labor hours.) SR = Standard variable manufacturing overhead rate per direct labor hour. SH = Standard hours of direct labor for actual level of activity.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
AH = Actual hours of direct labor. ( This measure will depend on the allocation base that the company uses. Jerry’s uses direct labor hours to allocate variable manufacturing overhead, so AH refers to actual direct labor hours.) SR = Standard variable manufacturing overhead rate per direct labor hour. SH = Standard hours of direct labor for actual level of activity. *Since variable overhead is not purchased per direct labor hour, the actual rate (AR) is not used in this calculation. Simply use the total cost of variable manufacturing overhead instead. **Standard hours of 21,000 = Standard of 0.10 hours per unit × 210,000 actual units produced and sold. † $105,000 standard variable overhead costs matches the flexible budget presented in Figure 10.2 "Flexible Budget for Variable Production Costs at Jerry’s Ice Cream". ‡ $5,500 unfavorable variable overhead spending variance = $100,000 – $94,500.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
*Since variable overhead is not purchased per direct labor hour, the actual rate (AR) is not used in this calculation. Simply use the total cost of variable manufacturing overhead instead. **Standard hours of 21,000 = Standard of 0.10 hours per unit × 210,000 actual units produced and sold. † $105,000 standard variable overhead costs matches the flexible budget presented in Figure 10.2 "Flexible Budget for Variable Production Costs at Jerry’s Ice Cream". ‡ $5,500 unfavorable variable overhead spending variance = $100,000 – $94,500. Variance is unfavorable because the actual variable overhead costs are higher than the expected costs given actual hours of 18,900. § $ (10,500) favorable variable overhead efficiency variance = $94,500 – $105,000. Variance is favorable because the actual hours of 18,900 are lower than the expected (budgeted) hours of 21,000. Variable Overhead Spending Variance Calculation
Question: How is the variable overhead spending variance calculated?
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Variance is unfavorable because the actual variable overhead costs are higher than the expected costs given actual hours of 18,900. § $ (10,500) favorable variable overhead efficiency variance = $94,500 – $105,000. Variance is favorable because the actual hours of 18,900 are lower than the expected (budgeted) hours of 21,000. Variable Overhead Spending Variance Calculation
Question: How is the variable overhead spending variance calculated? Answer: As shown in Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream", the variable overhead spending variance is the difference between what is actually paid for variable overhead and what should have been paid according to the standards: Key Equation
Variable overhead spending variance = Actual costs − (AH × SR)
Variable overhead spending variance = Actual costs − ( AH × SR) = $1 00,000 − ( 18, 9 00 × $5) = $5,500 unfavorable
As with direct materials and direct labor variances, all positive variances are unfavorable, and all negative variances are favorable. Note that there is no alternative calculation for the variable overhead spending variance because variable overhead costs are not purchased per direct labor hour. Thus actual rate (AR) is not used for this variance.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Answer: As shown in Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream", the variable overhead spending variance is the difference between what is actually paid for variable overhead and what should have been paid according to the standards: Key Equation
Variable overhead spending variance = Actual costs − (AH × SR)
Variable overhead spending variance = Actual costs − ( AH × SR) = $1 00,000 − ( 18, 9 00 × $5) = $5,500 unfavorable
As with direct materials and direct labor variances, all positive variances are unfavorable, and all negative variances are favorable. Note that there is no alternative calculation for the variable overhead spending variance because variable overhead costs are not purchased per direct labor hour. Thus actual rate (AR) is not used for this variance. This variance is unfavorable for Jerry’s Ice Cream because actual costs of $100,000 are higher than expected costs of $94,500. Variable Overhead Efficiency Variance Calculation
Question: How is the variable overhead efficiency variance calculated? Answer: As shown in Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream", the variable overhead efficiency variance is the difference between the actual hours worked at the standard rate and the standard hours at the standard rate:
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
This variance is unfavorable for Jerry’s Ice Cream because actual costs of $100,000 are higher than expected costs of $94,500. Variable Overhead Efficiency Variance Calculation
Question: How is the variable overhead efficiency variance calculated? Answer: As shown in Figure 10.8 "Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream", the variable overhead efficiency variance is the difference between the actual hours worked at the standard rate and the standard hours at the standard rate: Key Equation
Variable overhead efficiency variance = (AH × SR) − (SH × SR)
Variable overhead efficiency variance = ( AH × SR) − ( SH × SR) = ( 18, 9 00 × $5) − ( 21, 000 × $5) = ( $10,500) favorable
The 21,000 standard hours are the hours allowed given actual production (= 0.10 standard hours allowed per unit × 210,000 units produced). Since actual direct labor hours worked total 18,900, the variable manufacturing overhead costs should be lower than initially anticipated at 21,000 standard hours. ( This assumes variable overhead costs are truly driven by direct labor hours!) This results in a favorable variable overhead efficiency variance. Alternative Calculation.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Key Equation
Variable overhead efficiency variance = (AH × SR) − (SH × SR)
Variable overhead efficiency variance = ( AH × SR) − ( SH × SR) = ( 18, 9 00 × $5) − ( 21, 000 × $5) = ( $10,500) favorable
The 21,000 standard hours are the hours allowed given actual production (= 0.10 standard hours allowed per unit × 210,000 units produced). Since actual direct labor hours worked total 18,900, the variable manufacturing overhead costs should be lower than initially anticipated at 21,000 standard hours. ( This assumes variable overhead costs are truly driven by direct labor hours!) This results in a favorable variable overhead efficiency variance. Alternative Calculation. Since we are holding the standard rate constant and evaluating the difference between actual hours worked and standard hours, the variable overhead efficiency variance calculation can be simplified as follows: Key Equation
Variable overhead efficiency variance = (AH − SH) × SR
Variable overhead efficiency variance = ( AH − SH) × SR = ( 18, 9 00 − 21, 000) × $5 = ( $10,500) favorable
Note that both approaches—the variable overhead efficiency variance calculation and the alternative calculation—yield the same result. The variable overhead efficiency variance calculation presented previously shows that 18,900 in actual hours worked is lower than the 21,000 budgeted hours. Again, this variance is favorable because working fewer hours than expected should result in lower variable manufacturing overhead costs. Possible Causes of Variable Manufacturing Overhead Variances
Question:
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Since we are holding the standard rate constant and evaluating the difference between actual hours worked and standard hours, the variable overhead efficiency variance calculation can be simplified as follows: Key Equation
Variable overhead efficiency variance = (AH − SH) × SR
Variable overhead efficiency variance = ( AH − SH) × SR = ( 18, 9 00 − 21, 000) × $5 = ( $10,500) favorable
Note that both approaches—the variable overhead efficiency variance calculation and the alternative calculation—yield the same result. The variable overhead efficiency variance calculation presented previously shows that 18,900 in actual hours worked is lower than the 21,000 budgeted hours. Again, this variance is favorable because working fewer hours than expected should result in lower variable manufacturing overhead costs. Possible Causes of Variable Manufacturing Overhead Variances
Question: The managerial accountant at Jerry’s Ice Cream is interested in finding the cause of the unfavorable variable overhead spending variance of $5,500. The spending variance can result from variances in the cost of variable overhead items and the usage of these items. What might have caused the $5,500 unfavorable variable overhead spending variance? Answer: The left panel of Figure 10.9 "Possible Causes of Variable Manufacturing Overhead Variances for Jerry’s Ice Cream" contains some possible explanations for Jerry’s unfavorable overhead spending variance.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
The managerial accountant at Jerry’s Ice Cream is interested in finding the cause of the unfavorable variable overhead spending variance of $5,500. The spending variance can result from variances in the cost of variable overhead items and the usage of these items. What might have caused the $5,500 unfavorable variable overhead spending variance? Answer: The left panel of Figure 10.9 "Possible Causes of Variable Manufacturing Overhead Variances for Jerry’s Ice Cream" contains some possible explanations for Jerry’s unfavorable overhead spending variance. Figure 10.9 Possible Causes of Variable Manufacturing Overhead Variances for Jerry’s Ice Cream
Question: Jerry’s Ice Cream might also choose to investigate the $10,500 favorable variable overhead efficiency variance. What might have caused the $10,500 favorable variable overhead efficiency variance? Answer: The focus here is on the activity base used to allocate overhead.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Figure 10.9 Possible Causes of Variable Manufacturing Overhead Variances for Jerry’s Ice Cream
Question: Jerry’s Ice Cream might also choose to investigate the $10,500 favorable variable overhead efficiency variance. What might have caused the $10,500 favorable variable overhead efficiency variance? Answer: The focus here is on the activity base used to allocate overhead. Since Jerry’s uses direct labor hours as the activity base, the possible explanations for this variance are linked to efficiencies or inefficiencies in the use of direct labor. The right panel of Figure 10.9 "Possible Causes of Variable Manufacturing Overhead Variances for Jerry’s Ice Cream" contains some possible explanations for this variance. Again, this analysis is appropriate assuming direct labor hours truly drives the use of variable overhead activities. That is, we assume that an increase in direct labor hours will increase variable overhead costs and that a decrease in direct labor hours will decrease variable overhead costs. Business in Action 10.4
Hiding Fraud in Overhead Accounts
The controller of a small, closely held manufacturing company embezzled close to $1,000,000 over a 3-year period.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
Since Jerry’s uses direct labor hours as the activity base, the possible explanations for this variance are linked to efficiencies or inefficiencies in the use of direct labor. The right panel of Figure 10.9 "Possible Causes of Variable Manufacturing Overhead Variances for Jerry’s Ice Cream" contains some possible explanations for this variance. Again, this analysis is appropriate assuming direct labor hours truly drives the use of variable overhead activities. That is, we assume that an increase in direct labor hours will increase variable overhead costs and that a decrease in direct labor hours will decrease variable overhead costs. Business in Action 10.4
Hiding Fraud in Overhead Accounts
The controller of a small, closely held manufacturing company embezzled close to $1,000,000 over a 3-year period. With annual revenues of $30,000,000 and less than 100 employees, the company certainly felt the impact of losing $1,000,000. The forensic accountant who investigated the fraud identified several suspicious transactions, all of which were charged to the manufacturing overhead account. To prevent this type of fraud in the future, the forensic accountant recommended that “significant manufacturing overhead variances be analyzed both within and across time periods to identify anomalies.” Apparently, the company was not closely monitoring manufacturing overhead variances when the fraud occurred. Source:
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
With annual revenues of $30,000,000 and less than 100 employees, the company certainly felt the impact of losing $1,000,000. The forensic accountant who investigated the fraud identified several suspicious transactions, all of which were charged to the manufacturing overhead account. To prevent this type of fraud in the future, the forensic accountant recommended that “significant manufacturing overhead variances be analyzed both within and across time periods to identify anomalies.” Apparently, the company was not closely monitoring manufacturing overhead variances when the fraud occurred. Source: John B. MacArthur, Bobby E. Waldrup, and Gary R. Fane, “Caution: Fraud Overhead,” Strategic Finance, October 2004, 28–32. Key Takeaway
Standard costs are used to establish the flexible budget for variable manufacturing overhead. The flexible budget is compared to actual costs, and the difference is shown in the form of two variances. The variable overhead spending variance represents the difference between actual costs for variable overhead and budgeted costs based on the standards.
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Variable Manufacturing Overhead Variance Analysis
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10.5
Variable Manufacturing Overhead Variance Analysis
10.5 Variable Manufacturing Overhead Variance Analysis
Learning Objective
Variable Overhead Spending Variance Calculation
Key Equation
Variable Overhead Efficiency Variance Calculation
Key Equation
Key Equation
Possible Causes of Variable Manufacturing Overhead Variances
Business in Action 10.4
Key Takeaway
|
John B. MacArthur, Bobby E. Waldrup, and Gary R. Fane, “Caution: Fraud Overhead,” Strategic Finance, October 2004, 28–32. Key Takeaway
Standard costs are used to establish the flexible budget for variable manufacturing overhead. The flexible budget is compared to actual costs, and the difference is shown in the form of two variances. The variable overhead spending variance represents the difference between actual costs for variable overhead and budgeted costs based on the standards. The variable overhead efficiency variance is the difference between the actual activity level in the allocation base (often direct labor hours or machine hours) and the budgeted activity level in the allocation base according to the standards.
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Explain how to record standard costs and variances using journal entries. This chapter has focused on performing variance analysis to evaluate and control operations. Standard costing systems assist in this process and often involve recording transactions using standard cost information. When accountants use a standard costing system to record transactions, companies are able to quickly identify variances. In addition, inventory and related cost of goods sold are valued using standard cost information, which simplifies the bookkeeping process. Recording Direct Materials Transactions
Question: In Figure 10.4 "Direct Materials Variance Analysis for Jerry’s Ice Cream", we calculated two variances for direct materials at Jerry’s Ice Cream: materials price variance and materials quantity variance.
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
When accountants use a standard costing system to record transactions, companies are able to quickly identify variances. In addition, inventory and related cost of goods sold are valued using standard cost information, which simplifies the bookkeeping process. Recording Direct Materials Transactions
Question: In Figure 10.4 "Direct Materials Variance Analysis for Jerry’s Ice Cream", we calculated two variances for direct materials at Jerry’s Ice Cream: materials price variance and materials quantity variance. How are these variances recorded for transactions related to direct materials? Answer: Two journal entries are needed to record direct materials transactions that include these variances. An example of each is shown next. ( Typically, many more journal entries would be made throughout the year for direct materials.
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
How are these variances recorded for transactions related to direct materials? Answer: Two journal entries are needed to record direct materials transactions that include these variances. An example of each is shown next. ( Typically, many more journal entries would be made throughout the year for direct materials. For the purposes of this example, we will make one journal entry for each variance to summarize the activity for the year.) Materials Price Variance
The entry to record the purchase of direct materials and related price variance shown in Figure 10.4 "Direct Materials Variance Analysis for Jerry’s Ice Cream" is
Notice that the raw materials inventory account contains the actual quantity of direct materials purchased at the standard price. Accounts payable reflects the actual cost, and the materials price variance account shows the unfavorable variance. Unfavorable variances are recorded as debits and favorable variances are recorded as credits. Variance accounts are temporary accounts that are closed out at the end of the financial reporting period.
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
For the purposes of this example, we will make one journal entry for each variance to summarize the activity for the year.) Materials Price Variance
The entry to record the purchase of direct materials and related price variance shown in Figure 10.4 "Direct Materials Variance Analysis for Jerry’s Ice Cream" is
Notice that the raw materials inventory account contains the actual quantity of direct materials purchased at the standard price. Accounts payable reflects the actual cost, and the materials price variance account shows the unfavorable variance. Unfavorable variances are recorded as debits and favorable variances are recorded as credits. Variance accounts are temporary accounts that are closed out at the end of the financial reporting period. We show the process of closing out variance accounts at the end of this appendix. Materials Quantity Variance
The entry to record the use of direct materials in production and related quantity variance shown in Figure 10.4 "Direct Materials Variance Analysis for Jerry’s Ice Cream" is
Work-in-process inventory reflects the standard quantity of direct materials allowed at the standard price. The reduction in raw materials inventory reflects the actual quantity used at the standard price, and the materials quantity variance account shows the favorable variance. Recording Direct Labor Transactions
Question: In Figure 10.6 "Direct Labor Variance Analysis for Jerry’s Ice Cream", we calculated two variances for direct labor at Jerry’s Ice Cream:
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
We show the process of closing out variance accounts at the end of this appendix. Materials Quantity Variance
The entry to record the use of direct materials in production and related quantity variance shown in Figure 10.4 "Direct Materials Variance Analysis for Jerry’s Ice Cream" is
Work-in-process inventory reflects the standard quantity of direct materials allowed at the standard price. The reduction in raw materials inventory reflects the actual quantity used at the standard price, and the materials quantity variance account shows the favorable variance. Recording Direct Labor Transactions
Question: In Figure 10.6 "Direct Labor Variance Analysis for Jerry’s Ice Cream", we calculated two variances for direct labor at Jerry’s Ice Cream: labor rate variance and labor efficiency variance. How are these variances recorded for transactions related to direct labor? Answer: Because labor is not inventoried for later use like materials, only one journal entry is needed to record direct labor transactions that include these variances. ( Again, many more journal entries would typically be made throughout the year for direct labor.
| 2,001 | 3,141 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
labor rate variance and labor efficiency variance. How are these variances recorded for transactions related to direct labor? Answer: Because labor is not inventoried for later use like materials, only one journal entry is needed to record direct labor transactions that include these variances. ( Again, many more journal entries would typically be made throughout the year for direct labor. For the purposes of this example, we will make one journal entry to summarize the activity for the year.) Labor Rate and Efficiency Variances
The entry to record the cost of direct labor and related variances shown in Figure 10.6 "Direct Labor Variance Analysis for Jerry’s Ice Cream" is
Work-in-process inventory reflects the standard hours of direct labor allowed at the standard rate. The labor rate and efficiency variances represent the difference between work-in-process inventory (at the standard cost) and actual costs recorded in wages payable. Recording Manufacturing Overhead Transactions
Question: As discussed in Chapter 2 "How Is Job Costing Used to Track Production Costs?",
| 2,750 | 3,831 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
For the purposes of this example, we will make one journal entry to summarize the activity for the year.) Labor Rate and Efficiency Variances
The entry to record the cost of direct labor and related variances shown in Figure 10.6 "Direct Labor Variance Analysis for Jerry’s Ice Cream" is
Work-in-process inventory reflects the standard hours of direct labor allowed at the standard rate. The labor rate and efficiency variances represent the difference between work-in-process inventory (at the standard cost) and actual costs recorded in wages payable. Recording Manufacturing Overhead Transactions
Question: As discussed in Chapter 2 "How Is Job Costing Used to Track Production Costs?", the manufacturing overhead account is debited for all actual overhead expenditures and credited when overhead is applied to products. At the end of the period, the balance in manufacturing overhead, representing overapplied or underapplied overhead, is closed out to cost of goods sold. This overapplied or underapplied balance can be explained by combining the four overhead variances summarized in this chapter in Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream". How are these variances recorded for transactions related to manufacturing overhead? Answer:
| 3,142 | 4,452 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
the manufacturing overhead account is debited for all actual overhead expenditures and credited when overhead is applied to products. At the end of the period, the balance in manufacturing overhead, representing overapplied or underapplied overhead, is closed out to cost of goods sold. This overapplied or underapplied balance can be explained by combining the four overhead variances summarized in this chapter in Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream". How are these variances recorded for transactions related to manufacturing overhead? Answer: Based on the information at the left side of Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream", the entry to record actual overhead expenditures is
The credit goes to several different accounts depending on the nature of the expenditure. For example, if the expenditure is for indirect materials, the credit goes to accounts payable. If the expenditure is for indirect labor, the credit goes to wages payable. The next entry reflects overhead applied to products. This information comes from the right side of Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream".
| 3,832 | 5,135 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Based on the information at the left side of Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream", the entry to record actual overhead expenditures is
The credit goes to several different accounts depending on the nature of the expenditure. For example, if the expenditure is for indirect materials, the credit goes to accounts payable. If the expenditure is for indirect labor, the credit goes to wages payable. The next entry reflects overhead applied to products. This information comes from the right side of Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream". At this point, manufacturing overhead has a $16,000 credit balance, which represents overapplied overhead ($16,000 = $252,000 applied overhead – $236,000 actual overhead). The following summary of fixed and variable overhead variances shown in Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream" explains the overapplied amount of $16,000: Recording Finished Goods Transactions
Question: Review all the debits to work-in-process inventory throughout this appendix and you will see the following costs (all recorded at standard cost): How are these costs transferred from work-in-process inventory to finished good inventory when the goods are completed?
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
At this point, manufacturing overhead has a $16,000 credit balance, which represents overapplied overhead ($16,000 = $252,000 applied overhead – $236,000 actual overhead). The following summary of fixed and variable overhead variances shown in Figure 10.14 "Comparison of Variable and Fixed Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream" explains the overapplied amount of $16,000: Recording Finished Goods Transactions
Question: Review all the debits to work-in-process inventory throughout this appendix and you will see the following costs (all recorded at standard cost): How are these costs transferred from work-in-process inventory to finished good inventory when the goods are completed? Answer: When the 210,000 units are completed, the following entry is made to transfer the costs out of work-in-process inventory and into finished goods inventory. Note that the standard cost per unit was established at $4.50, which includes variable manufacturing costs of $3.80 (see Figure 10.1 "Standard Costs at Jerry’s Ice Cream") and fixed manufacturing costs of $0.70 (see footnote to Figure 10.12 "Fixed Manufacturing Overhead Information for Jerry’s Ice Cream" ). Total production of 210,000 units × Standard cost of $4.50 per unit equals $945,000; the same amount you see in the entry presented previously.
| 5,135 | 6,465 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Answer: When the 210,000 units are completed, the following entry is made to transfer the costs out of work-in-process inventory and into finished goods inventory. Note that the standard cost per unit was established at $4.50, which includes variable manufacturing costs of $3.80 (see Figure 10.1 "Standard Costs at Jerry’s Ice Cream") and fixed manufacturing costs of $0.70 (see footnote to Figure 10.12 "Fixed Manufacturing Overhead Information for Jerry’s Ice Cream" ). Total production of 210,000 units × Standard cost of $4.50 per unit equals $945,000; the same amount you see in the entry presented previously. Recording Cost of Goods Sold Transactions
Question: How do we record the costs associated with products that are sold? Answer: When finished product is sold, the following entry is made: Note that the entry shown previously uses standard costs, which means cost of goods sold is stated at standard cost until the next entry is made.
| 5,848 | 6,798 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Recording Cost of Goods Sold Transactions
Question: How do we record the costs associated with products that are sold? Answer: When finished product is sold, the following entry is made: Note that the entry shown previously uses standard costs, which means cost of goods sold is stated at standard cost until the next entry is made. Closing Manufacturing Overhead and Variance Accounts
Question: At the end of the period, Jerry’s Ice Cream has balances remaining in manufacturing overhead along with all the variance accounts. These accounts must be closed out at the end of the period. How is this accomplished? Answer:
| 6,465 | 7,086 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Closing Manufacturing Overhead and Variance Accounts
Question: At the end of the period, Jerry’s Ice Cream has balances remaining in manufacturing overhead along with all the variance accounts. These accounts must be closed out at the end of the period. How is this accomplished? Answer: These accounts are closed out to cost of goods sold, after which point cost of goods sold will reflect actual manufacturing costs for the products sold during the period. The following entry is made to accomplish this goal: *$61,500 = $88,000 + $37,800 – $21,000 – $27,300 – $16,000. Key Takeaway
In a standard costing system, all inventory accounts reflect standard cost information. The difference between standard and actual data are recorded in the variance accounts and the manufacturing overhead account, which are ultimately closed out to cost of goods sold at the end of the period.
| 6,798 | 7,677 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
These accounts are closed out to cost of goods sold, after which point cost of goods sold will reflect actual manufacturing costs for the products sold during the period. The following entry is made to accomplish this goal: *$61,500 = $88,000 + $37,800 – $21,000 – $27,300 – $16,000. Key Takeaway
In a standard costing system, all inventory accounts reflect standard cost information. The difference between standard and actual data are recorded in the variance accounts and the manufacturing overhead account, which are ultimately closed out to cost of goods sold at the end of the period. End-of-Chapter Exercises
Questions
Explain how a flexible budget differs from a master budget. Assume you are the production manager for a manufacturing company that anticipated selling 40,000 units of product for the master budget and actually sold 50,000 units. Why would you prefer to be evaluated using a flexible budget for direct labor rather than the master budget? What is a standard cost, and how does it differ from a budgeted cost? How are standards established for direct materials, direct labor, and variable manufacturing overhead?
| 7,087 | 8,233 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
End-of-Chapter Exercises
Questions
Explain how a flexible budget differs from a master budget. Assume you are the production manager for a manufacturing company that anticipated selling 40,000 units of product for the master budget and actually sold 50,000 units. Why would you prefer to be evaluated using a flexible budget for direct labor rather than the master budget? What is a standard cost, and how does it differ from a budgeted cost? How are standards established for direct materials, direct labor, and variable manufacturing overhead? Explain what management is trying to evaluate in reviewing the materials price variance and materials quantity variance. Be sure to include the formula for each variance in your explanation. Explain what management is trying to evaluate in reviewing the labor rate variance and labor efficiency variance. Be sure to include the formula for each variance in your explanation. Explain how an unfavorable labor rate variance might cause a favorable labor efficiency variance and favorable materials quantity variance.
| 7,677 | 8,748 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Explain what management is trying to evaluate in reviewing the materials price variance and materials quantity variance. Be sure to include the formula for each variance in your explanation. Explain what management is trying to evaluate in reviewing the labor rate variance and labor efficiency variance. Be sure to include the formula for each variance in your explanation. Explain how an unfavorable labor rate variance might cause a favorable labor efficiency variance and favorable materials quantity variance. The production manager just received a report indicating an unfavorable labor rate variance. Further investigation reveals that the sales department accepted a large rush order. Who should be held responsible for the unfavorable variance? Explain. Refer to Note 10.38 "Business in Action 10.3" Why is direct labor variance analysis particularly important for United Airlines?
| 8,233 | 9,124 |
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
The production manager just received a report indicating an unfavorable labor rate variance. Further investigation reveals that the sales department accepted a large rush order. Who should be held responsible for the unfavorable variance? Explain. Refer to Note 10.38 "Business in Action 10.3" Why is direct labor variance analysis particularly important for United Airlines? Are favorable variances always a result of good management decisions? Explain. Do most companies investigate all variances? Explain. How is variable overhead variance analysis similar for companies using activity-based costing and companies using traditional costing?
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Are favorable variances always a result of good management decisions? Explain. Do most companies investigate all variances? Explain. How is variable overhead variance analysis similar for companies using activity-based costing and companies using traditional costing? What causes the fixed overhead production volume variance? (Appendix). Why are direct materials and direct labor variance accounts needed in a standard costing system? What happens to these accounts at the end of the period? Brief Exercises
Analyzing Costs at Jerry’s Ice Cream.
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
What causes the fixed overhead production volume variance? (Appendix). Why are direct materials and direct labor variance accounts needed in a standard costing system? What happens to these accounts at the end of the period? Brief Exercises
Analyzing Costs at Jerry’s Ice Cream. Refer to the dialogue at Jerry’s Ice Cream presented at the beginning of the chapter. What happened with direct labor and direct materials costs at Jerry’s Ice Cream? What did Jerry, the owner, ask Michelle to do? Direct Materials Standard Cost and Flexible Budget. Manhattan Company produces high-quality chairs.
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Appendix: Recording Standard Costs and Variances
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10.9
Appendix: Recording Standard Costs and Variances
10.9 Appendix: Recording Standard Costs and Variances
Learning Objective
Recording Direct Materials Transactions
Materials Price Variance
Materials Quantity Variance
Recording Direct Labor Transactions
Labor Rate and Efficiency Variances
Recording Manufacturing Overhead Transactions
Recording Finished Goods Transactions
Recording Cost of Goods Sold Transactions
Closing Manufacturing Overhead and Variance Accounts
Key Takeaway
End-of-Chapter Exercises
|
Refer to the dialogue at Jerry’s Ice Cream presented at the beginning of the chapter. What happened with direct labor and direct materials costs at Jerry’s Ice Cream? What did Jerry, the owner, ask Michelle to do? Direct Materials Standard Cost and Flexible Budget. Manhattan Company produces high-quality chairs. Each chair req
| 9,672 | 10,000 |
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
|
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Perform trend analysis to evaluate financial statement information. Question: How is trend analysis used to evaluate the financial health of an organization? Answer: Trend analysis
An analysis that evaluates financial information for an organization over a period of time and is typically presented as a dollar amount change and a percentage change. evaluates an organization’s financial information over a period of time. Periods may be measured in months, quarters, or years, depending on the circumstances. The goal is to calculate and analyze the amount change and percent change from one period to the next. For example, in fiscal years 2010 and 2009, Coca-Cola had the operating income shown as follows. ( Amounts are in millions.
| 0 | 837 |
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
|
evaluates an organization’s financial information over a period of time. Periods may be measured in months, quarters, or years, depending on the circumstances. The goal is to calculate and analyze the amount change and percent change from one period to the next. For example, in fiscal years 2010 and 2009, Coca-Cola had the operating income shown as follows. ( Amounts are in millions. To convert to the actual amount, simply multiply the amount given times one million. For example, $8,449 × 1,000,000 = $8,449,000,000. Thus Coca-Cola had operating income of $8,449,000,000 in 2010.) Amount 2010
Amount 2009
Amount Change
Percent Change
Operating income
$8,449
$8,231
? ?
| 451 | 1,125 |
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
|
To convert to the actual amount, simply multiply the amount given times one million. For example, $8,449 × 1,000,000 = $8,449,000,000. Thus Coca-Cola had operating income of $8,449,000,000 in 2010.) Amount 2010
Amount 2009
Amount Change
Percent Change
Operating income
$8,449
$8,231
? ? Although readers of the financial information can see that operating income increased from 2009 to 2010, the exact dollar amount of the change and the percent change is more helpful in evaluating the company’s performance. The dollar amount of change is calculated as follows: Key Equation
Amount of change = Current year amount – Base year amount
Amount of change = Current year amount − Base year amount $218 = $8,449 − $8,231
Question: As you can see, operating income increased by $218,000,000 from 2009 to 2010. Is this a significant increase for Coca-Cola?
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
|
Although readers of the financial information can see that operating income increased from 2009 to 2010, the exact dollar amount of the change and the percent change is more helpful in evaluating the company’s performance. The dollar amount of change is calculated as follows: Key Equation
Amount of change = Current year amount – Base year amount
Amount of change = Current year amount − Base year amount $218 = $8,449 − $8,231
Question: As you can see, operating income increased by $218,000,000 from 2009 to 2010. Is this a significant increase for Coca-Cola? Answer: Most of us consider $218,000,000 to be a huge amount, but the only way to gauge the true significance of this amount for Coca-Cola is to calculate the percent change from 2009 to 2010. The percent change
Calculated as the current year amount minus the base amount; this is then divided by the base year amount. is calculated as the current year amount minus the base year amount, divided by the base year amount.
| 1,125 | 2,109 |
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Answer: Most of us consider $218,000,000 to be a huge amount, but the only way to gauge the true significance of this amount for Coca-Cola is to calculate the percent change from 2009 to 2010. The percent change
Calculated as the current year amount minus the base amount; this is then divided by the base year amount. is calculated as the current year amount minus the base year amount, divided by the base year amount. Key Equation
Percent change = (Current year amount – Base year amount) ÷ Base year amount
The calculation that follows shows operating income increased 2.6 percent from 2009 to 2010. Although not an extraordinarily significant increase, this does represent positive results for Coca-Cola. Percent change = ( Current year amount − Base year amount) ÷ Base year amount 2.6 % = ( $8,449 − $8,231) ÷ $8,231
Trend Analysis for the Income Statement and Balance Sheet
Question: Trend analysis is often used to evaluate each line item on the income statement and balance sheet. How is this analysis prepared?
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Key Equation
Percent change = (Current year amount – Base year amount) ÷ Base year amount
The calculation that follows shows operating income increased 2.6 percent from 2009 to 2010. Although not an extraordinarily significant increase, this does represent positive results for Coca-Cola. Percent change = ( Current year amount − Base year amount) ÷ Base year amount 2.6 % = ( $8,449 − $8,231) ÷ $8,231
Trend Analysis for the Income Statement and Balance Sheet
Question: Trend analysis is often used to evaluate each line item on the income statement and balance sheet. How is this analysis prepared? Answer: Figure 13.1 "Income Statement Trend Analysis for " shows Coca-Cola’s income statement trend analysis, and Figure 13.2 "Balance Sheet Trend Analysis for " shows Coca-Cola’s balance sheet trend analysis. Carefully examine each of these figures, including the comments. Figure 13.1 Income Statement Trend Analysis for Coca-Cola
Note: Percent change for each line item is found by dividing the increase (decrease) amount by the 2009 amount.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Answer: Figure 13.1 "Income Statement Trend Analysis for " shows Coca-Cola’s income statement trend analysis, and Figure 13.2 "Balance Sheet Trend Analysis for " shows Coca-Cola’s balance sheet trend analysis. Carefully examine each of these figures, including the comments. Figure 13.1 Income Statement Trend Analysis for Coca-Cola
Note: Percent change for each line item is found by dividing the increase (decrease) amount by the 2009 amount. For example, net sales 13.3 percent increase equals $4,129 ÷ $30,990. Figure 13.1 "Income Statement Trend Analysis for " shows that net sales increased by $4,129,000,000, or 13.3 percent. Cost of goods sold had a corresponding increase of $1,605,000,000, or 14.5 percent. The increase in net sales and related increase in cost of goods sold resulted in an increase in gross margin of $2,524,000,000, or 12.7 percent. The increase in selling and administrative expenses of $1,800,000,000, or 15.8 percent, outpaced the increase in net sales, resulting in a relatively small increase in operating income of $218,000,000, or 2.6 percent.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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For example, net sales 13.3 percent increase equals $4,129 ÷ $30,990. Figure 13.1 "Income Statement Trend Analysis for " shows that net sales increased by $4,129,000,000, or 13.3 percent. Cost of goods sold had a corresponding increase of $1,605,000,000, or 14.5 percent. The increase in net sales and related increase in cost of goods sold resulted in an increase in gross margin of $2,524,000,000, or 12.7 percent. The increase in selling and administrative expenses of $1,800,000,000, or 15.8 percent, outpaced the increase in net sales, resulting in a relatively small increase in operating income of $218,000,000, or 2.6 percent. The significant increase in other income (expenses), net of 555.6 percent relates to a one-time gain of $4,978,000,000 resulting from Coca-Cola’s acquisition of Coca-Cola Enterprises, Inc., in 2010 (this information comes from the notes to the financial statements). This one-time gain caused an unusually large increase in net income for 2010. This is important as we continue our analysis of Coca-Cola Company throughout the chapter. Net income will appear to have an unusually large increase as we cover various measures of performance, but keep in mind that the one-time gain in 2010 of $4,978,000,000 caused most of the increase from 2009 to 2010. Figure 13.2 Balance Sheet Trend Analysis for Coca-Cola
Note:
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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The significant increase in other income (expenses), net of 555.6 percent relates to a one-time gain of $4,978,000,000 resulting from Coca-Cola’s acquisition of Coca-Cola Enterprises, Inc., in 2010 (this information comes from the notes to the financial statements). This one-time gain caused an unusually large increase in net income for 2010. This is important as we continue our analysis of Coca-Cola Company throughout the chapter. Net income will appear to have an unusually large increase as we cover various measures of performance, but keep in mind that the one-time gain in 2010 of $4,978,000,000 caused most of the increase from 2009 to 2010. Figure 13.2 Balance Sheet Trend Analysis for Coca-Cola
Note: Percent change for each line item is found by dividing the increase (decrease) amount by the 2009 amount. For example, cash and cash equivalents 22.4 percent increase equals $2,048 ÷ $9,151. Current Assets and Current Liabilities
Question: What does the balance sheet trend analysis in Figure 13.2 "Balance Sheet Trend Analysis for " tell us about current assets and current liabilities for Coca-Cola? Answer:
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Percent change for each line item is found by dividing the increase (decrease) amount by the 2009 amount. For example, cash and cash equivalents 22.4 percent increase equals $2,048 ÷ $9,151. Current Assets and Current Liabilities
Question: What does the balance sheet trend analysis in Figure 13.2 "Balance Sheet Trend Analysis for " tell us about current assets and current liabilities for Coca-Cola? Answer: Figure 13.2 "Balance Sheet Trend Analysis for " shows that cash and cash equivalents increased by $2,048,000,000, or 22.4 percent. Coca-Cola’s statement of cash flows would provide detailed information regarding this increase. ( Chapter 12 "How Is the Statement of Cash Flows Prepared and Used?" covers the statement of cash flows.) Marketable securities increased 122.6 percent, accounts receivable increased 17.9 percent, and merchandise inventory increased 12.6 percent.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Figure 13.2 "Balance Sheet Trend Analysis for " shows that cash and cash equivalents increased by $2,048,000,000, or 22.4 percent. Coca-Cola’s statement of cash flows would provide detailed information regarding this increase. ( Chapter 12 "How Is the Statement of Cash Flows Prepared and Used?" covers the statement of cash flows.) Marketable securities increased 122.6 percent, accounts receivable increased 17.9 percent, and merchandise inventory increased 12.6 percent. Other current assets increased 42.0 percent. Moving to current liabilities, accounts payable and accrued liabilities increased by 33.1 percent, loans and notes payable increased 20.0 percent, and other current liabilities decreased 391.7 percent (mostly attributable to a significant increase in the current portion of long-term debt). Noncurrent Assets and Noncurrent Liabilities
Question: What does the balance sheet trend analysis in Figure 13.2 "Balance Sheet Trend Analysis for " tell us about noncurrent assets and noncurrent liabilities for Coca-Cola? Answer:
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Other current assets increased 42.0 percent. Moving to current liabilities, accounts payable and accrued liabilities increased by 33.1 percent, loans and notes payable increased 20.0 percent, and other current liabilities decreased 391.7 percent (mostly attributable to a significant increase in the current portion of long-term debt). Noncurrent Assets and Noncurrent Liabilities
Question: What does the balance sheet trend analysis in Figure 13.2 "Balance Sheet Trend Analysis for " tell us about noncurrent assets and noncurrent liabilities for Coca-Cola? Answer: Figure 13.2 "Balance Sheet Trend Analysis for " shows that long-term investments increased 11.2 percent. Property, plant, and equipment increased 54.0 percent, and intangible assets increased by a significant 109.8 percent. Both items appearing under noncurrent liabilities increased, with a 177.5 percent increase in long-term debt and a 99.2 percent increase in other liabilities and deferred taxes. Shareholders’ Equity
Question: What does the balance sheet trend analysis in Figure 13.2 "Balance Sheet Trend Analysis for " tell us about shareholders’ equity for Coca-Cola?
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Figure 13.2 "Balance Sheet Trend Analysis for " shows that long-term investments increased 11.2 percent. Property, plant, and equipment increased 54.0 percent, and intangible assets increased by a significant 109.8 percent. Both items appearing under noncurrent liabilities increased, with a 177.5 percent increase in long-term debt and a 99.2 percent increase in other liabilities and deferred taxes. Shareholders’ Equity
Question: What does the balance sheet trend analysis in Figure 13.2 "Balance Sheet Trend Analysis for " tell us about shareholders’ equity for Coca-Cola? Answer: Common stock increased 16.1 percent, and retained earnings increased 17.8 percent. Accumulated other income (loss) went further into negative territory by 91.5 percent, and treasury stock increased 9.3 percent. Big Picture Balance Sheet Trend Analysis
Question: What are some of the key big picture items identified in the balance sheet trend analysis shown in Figure 13.2 "Balance Sheet Trend Analysis for "?
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Answer: Common stock increased 16.1 percent, and retained earnings increased 17.8 percent. Accumulated other income (loss) went further into negative territory by 91.5 percent, and treasury stock increased 9.3 percent. Big Picture Balance Sheet Trend Analysis
Question: What are some of the key big picture items identified in the balance sheet trend analysis shown in Figure 13.2 "Balance Sheet Trend Analysis for "? Answer: Overall, total assets increased by $24,250,000,000, or 49.8 percent. Of course, total liabilities and shareholders’ equity also increased by the same amount. The increases identified in almost every asset, liability, and shareholders’ equity line item are significant. From reading the notes to the financial statements, the authors were able to identify the main source of these increases.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Answer: Overall, total assets increased by $24,250,000,000, or 49.8 percent. Of course, total liabilities and shareholders’ equity also increased by the same amount. The increases identified in almost every asset, liability, and shareholders’ equity line item are significant. From reading the notes to the financial statements, the authors were able to identify the main source of these increases. In 2010, Coca-Cola acquired the remaining 67 percent of Coca-Cola Enterprises, Inc.’s (CCE) North America business that Coca-Cola did not already own. This resulted in significant increases in noncurrent assets and noncurrent liabilities, which were acquired as part of this transaction. It also resulted in the reporting of a one-time gain on the income statement of $4,978,000,000, which came from Coca-Cola remeasuring its equity interest in CCE to fair value upon close of the transaction in 2010. This analysis points to the reason we perform trend analysis—to identify the increases and decreases in dollar amounts from one year to the next and to take a close look at unusual trends. Trend Analysis over Several Years
Question:
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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In 2010, Coca-Cola acquired the remaining 67 percent of Coca-Cola Enterprises, Inc.’s (CCE) North America business that Coca-Cola did not already own. This resulted in significant increases in noncurrent assets and noncurrent liabilities, which were acquired as part of this transaction. It also resulted in the reporting of a one-time gain on the income statement of $4,978,000,000, which came from Coca-Cola remeasuring its equity interest in CCE to fair value upon close of the transaction in 2010. This analysis points to the reason we perform trend analysis—to identify the increases and decreases in dollar amounts from one year to the next and to take a close look at unusual trends. Trend Analysis over Several Years
Question: The trend analysis just described works well when comparing financial data for two years. However, many prefer to review trends over more than two years. How might a trend analysis for several years be prepared? Answer: A common approach is to establish the oldest year as the base year and compute future years as a percentage of the base year.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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The trend analysis just described works well when comparing financial data for two years. However, many prefer to review trends over more than two years. How might a trend analysis for several years be prepared? Answer: A common approach is to establish the oldest year as the base year and compute future years as a percentage of the base year. For example, Coca-Cola had the following net sales and operating income for each of the past five years (in millions): 2010
2009
2008
2007
2006
Net sales
$35,119
$30,990
$31,944
$28,857
$24,088
Operating income
$ 8,449
$ 8,231
$ 8,446
$ 7,252
$ 6,308
Assuming 2006 is the base year, the trend percentage
Calculated as the current year amount divided by the base year amount. is calculated for each year using the following formula: Key Equation
Trend percentage = Current year ÷ Base year
Figure 13.3 "Percentage Trend Analysis for " shows Coca-Cola’s trend percentages for net sales and operating income. Most analysts would expand this analysis to include most, if not all, of the income statement line items.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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For example, Coca-Cola had the following net sales and operating income for each of the past five years (in millions): 2010
2009
2008
2007
2006
Net sales
$35,119
$30,990
$31,944
$28,857
$24,088
Operating income
$ 8,449
$ 8,231
$ 8,446
$ 7,252
$ 6,308
Assuming 2006 is the base year, the trend percentage
Calculated as the current year amount divided by the base year amount. is calculated for each year using the following formula: Key Equation
Trend percentage = Current year ÷ Base year
Figure 13.3 "Percentage Trend Analysis for " shows Coca-Cola’s trend percentages for net sales and operating income. Most analysts would expand this analysis to include most, if not all, of the income statement line items. Figure 13.3 Percentage Trend Analysis for Coca-Cola
Note: Trend percentages are calculated as the current year divided by the base year (2006). For example, the net sales 2010 trend percentage of 146 percent equals $35,119 (net sales for 2010) divided by $24,088 (net sales for the base year 2006). All percentages shown in Figure 13.3 "Percentage Trend Analysis for " are relative to the base year, which is fiscal year 2006. Notice that the increase in operating income of 34 percent (= 134 percent – 100 percent) from 2006 to 2010 was less than the increase in net sales of 46 percent for the same period.
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Trend Analysis of Financial Statements
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13.1
Trend Analysis of Financial Statements
13.1 Trend Analysis of Financial Statements
Learning Objective
Key Equation
Key Equation
Trend Analysis for the Income Statement and Balance Sheet
Current Assets and Current Liabilities
Noncurrent Assets and Noncurrent Liabilities
Shareholders’ Equity
Big Picture Balance Sheet Trend Analysis
Trend Analysis over Several Years
Key Equation
Key Takeaway
Business in Action 13.1
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Figure 13.3 Percentage Trend Analysis for Coca-Cola
Note: Trend percentages are calculated as the current year divided by the base year (2006). For example, the net sales 2010 trend percentage of 146 percent equals $35,119 (net sales for 2010) divided by $24,088 (net sales for the base year 2006). All percentages shown in Figure 13.3 "Percentage Trend Analysis for " are relative to the base year, which is fiscal year 2006. Notice that the increase in operating income of 34 percent (= 134 percent – 100 percent) from 2006 to 2010 was less than the increase in net sales of 46 percent for the same period. This signals that the increase in Coca-Cola’s operating expenses outpaced the increase in net sales during this period. Figure 13.4 "Five-Year Percentage Trend in Operating Income for " shows the trend percentages in Coca-Cola’s operating income f
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Operations Management in Manufacturing and Service Industries
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Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
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Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
The product development process can be complex and lengthy. It took sixteen years for Bob Montgomery and others at his company to develop the PowerSki Jetboard, and this involved thousands of design changes. It seemed worth it: the Jetboard, an exciting, engine-propelled personal watercraft that’s a cross between a high-performance surfboard and a competition water-ski/wakeboard, received extensive media attention and earned rave reviews. It was showered with honors, including Time magazine’s “Best Invention of the Year” award. Stories about the Jetboard appeared in more than fifty magazines around the world, and it appeared in several movies, in over twenty-five TV shows, and on YouTube. Jetboard, http;//www,jetboard.com (accessed October 19, 2011); Liquid Blue Features PowerSki Jetboards, YouTube video, 6:50, posted by “powerskijetboard,” March 13, 2008, http://www.youtube.com/watch?v=pyfIXBxC0_A (accessed November 1, 2011); Jetboard, “Publicity,” http://jetboard.com/marketingpublicity.html (accessed November 1, 2011).
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Operations Management in Manufacturing and Service Industries
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Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
It was showered with honors, including Time magazine’s “Best Invention of the Year” award. Stories about the Jetboard appeared in more than fifty magazines around the world, and it appeared in several movies, in over twenty-five TV shows, and on YouTube. Jetboard, http;//www,jetboard.com (accessed October 19, 2011); Liquid Blue Features PowerSki Jetboards, YouTube video, 6:50, posted by “powerskijetboard,” March 13, 2008, http://www.youtube.com/watch?v=pyfIXBxC0_A (accessed November 1, 2011); Jetboard, “Publicity,” http://jetboard.com/marketingpublicity.html (accessed November 1, 2011). One reviewer of the Jetboard exclaimed, “Up, up and away. PowerSki's the closest you'll get to being Superman on the water. With 40 hp under your toes, the 100-pound board literally flies. You supply the cape.” Cliff Gromer, “PowerSki Jetboard,” Popular Mechanics, March 2000, http://www.popularmechanics.com/outdoors/adventures/1277611.html (accessed June 1, 2008).
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
One reviewer of the Jetboard exclaimed, “Up, up and away. PowerSki's the closest you'll get to being Superman on the water. With 40 hp under your toes, the 100-pound board literally flies. You supply the cape.” Cliff Gromer, “PowerSki Jetboard,” Popular Mechanics, March 2000, http://www.popularmechanics.com/outdoors/adventures/1277611.html (accessed June 1, 2008). Montgomery and his team at PowerSki enjoyed taking their well-deserved bows for the job they did designing the product. But having a product was only the beginning for the company. The next step was developing a system that would produce high-quality Jetboards at reasonable prices. Before putting this system in place, PowerSki managers had to address several questions: What kind of production process should they use to make the Jetboards?
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Montgomery and his team at PowerSki enjoyed taking their well-deserved bows for the job they did designing the product. But having a product was only the beginning for the company. The next step was developing a system that would produce high-quality Jetboards at reasonable prices. Before putting this system in place, PowerSki managers had to address several questions: What kind of production process should they use to make the Jetboards? How large should their production facilities be, and where should they be located? How should the plant be laid out? Should every component be made in-house, or should some be furnished by subcontractors? Where should they buy the materials they needed to build Jetboards? What systems would they need to ensure that production was as efficient as possible and that quality standards were maintained?
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
How large should their production facilities be, and where should they be located? How should the plant be laid out? Should every component be made in-house, or should some be furnished by subcontractors? Where should they buy the materials they needed to build Jetboards? What systems would they need to ensure that production was as efficient as possible and that quality standards were maintained? Answering these questions helped PowerSki set up a manufacturing system through which it could accomplish the most important task that it had set for itself: efficiently producing quality Jetboards. 11.1 Operations Management in Manufacturing
Learning Objectives
Define operations management, and discuss the role of the operations manager in a manufacturing company. Describe the decisions made in planning the production process in a manufacturing company. Like PowerSki, every organization—whether it produces goods or provides services—sees Job 1 as furnishing customers with quality products.
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Answering these questions helped PowerSki set up a manufacturing system through which it could accomplish the most important task that it had set for itself: efficiently producing quality Jetboards. 11.1 Operations Management in Manufacturing
Learning Objectives
Define operations management, and discuss the role of the operations manager in a manufacturing company. Describe the decisions made in planning the production process in a manufacturing company. Like PowerSki, every organization—whether it produces goods or provides services—sees Job 1 as furnishing customers with quality products. Thus, to compete with other organizations, a company must convert resources (materials, labor, money, information) into goods or services as efficiently as possible. The upper-level manager who directs this transformation process is called an operations manager. The job of operations management (OM)
Management of the process that transforms resources into products. , then, consists of all the activities involved in transforming a product idea into a finished product, as well as those involved in planning and controlling the systems that produce goods and services. In other words, operations managers manage the process that transforms inputs into outputs.
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Thus, to compete with other organizations, a company must convert resources (materials, labor, money, information) into goods or services as efficiently as possible. The upper-level manager who directs this transformation process is called an operations manager. The job of operations management (OM)
Management of the process that transforms resources into products. , then, consists of all the activities involved in transforming a product idea into a finished product, as well as those involved in planning and controlling the systems that produce goods and services. In other words, operations managers manage the process that transforms inputs into outputs. Figure 11.1 "The Transformation Process" illustrates this traditional function of operations management. Figure 11.1 The Transformation Process
In the rest of this chapter, we’ll discuss the major activities of operations managers. We’ll start by describing the role that operations managers play in the various processes designed to produce goods and offer services. Next, we’ll look at the production of goods in manufacturing firms; then, we’ll describe operations management activities in companies that provide services.
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Figure 11.1 "The Transformation Process" illustrates this traditional function of operations management. Figure 11.1 The Transformation Process
In the rest of this chapter, we’ll discuss the major activities of operations managers. We’ll start by describing the role that operations managers play in the various processes designed to produce goods and offer services. Next, we’ll look at the production of goods in manufacturing firms; then, we’ll describe operations management activities in companies that provide services. We’ll wrap up the chapter by explaining the role of operations management in such processes as quality control and outsourcing. Operations Management in Manufacturing
Like PowerSki, all manufacturers set out to perform the same basic function: to transform resources into finished goods. To perform this function in today’s business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, to hold down the costs of materials and labor, and to eliminate all costs that add no value to the finished product.
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
We’ll wrap up the chapter by explaining the role of operations management in such processes as quality control and outsourcing. Operations Management in Manufacturing
Like PowerSki, all manufacturers set out to perform the same basic function: to transform resources into finished goods. To perform this function in today’s business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, to hold down the costs of materials and labor, and to eliminate all costs that add no value to the finished product. Making the decisions involved in the effort to attain these goals is the job of the operations manager. That person’s responsibilities can be grouped as follows: Production planning. During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out. Production control.
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Making the decisions involved in the effort to attain these goals is the job of the operations manager. That person’s responsibilities can be grouped as follows: Production planning. During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out. Production control. Once the production process is under way, managers must continually schedule and monitor the activities that make up that process. They must solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories. Quality control. Finally, the operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained.
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Once the production process is under way, managers must continually schedule and monitor the activities that make up that process. They must solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories. Quality control. Finally, the operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained. Let’s take a closer look at each of these responsibilities. Planning the Production Process
The decisions made in the planning stage have long-range implications and are crucial to a firm’s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market?
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|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Let’s take a closer look at each of these responsibilities. Planning the Production Process
The decisions made in the planning stage have long-range implications and are crucial to a firm’s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Perhaps it wants to build a reputation for reliability. What if it intends to offer a wide range of products? To make things even more complicated, all these decisions involve trade-offs. Upholding a reputation for reliability isn’t necessarily compatible with offering a wide range of products. Low cost doesn’t normally go hand in hand with high quality.
| 5,671 | 6,506 |
msmarco_v2.1_doc_00_10045770#12_14797677
|
http://2012books.lardbucket.org/books/an-introduction-to-business-v2.0/s15-operations-management-in-manuf.html
|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Perhaps it wants to build a reputation for reliability. What if it intends to offer a wide range of products? To make things even more complicated, all these decisions involve trade-offs. Upholding a reputation for reliability isn’t necessarily compatible with offering a wide range of products. Low cost doesn’t normally go hand in hand with high quality. With these factors in mind, let’s look at the specific types of decisions that have to be made in the production planning process. We’ve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management. Production-Method Decisions
The first step in production planning is deciding which type of production process is best for making the goods that your company intends to manufacture. In reaching this decision, you should answer such questions as the following: How much input do I receive from a particular customer before producing my goods?
| 6,150 | 7,127 |
msmarco_v2.1_doc_00_10045770#13_14801042
|
http://2012books.lardbucket.org/books/an-introduction-to-business-v2.0/s15-operations-management-in-manuf.html
|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
With these factors in mind, let’s look at the specific types of decisions that have to be made in the production planning process. We’ve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management. Production-Method Decisions
The first step in production planning is deciding which type of production process is best for making the goods that your company intends to manufacture. In reaching this decision, you should answer such questions as the following: How much input do I receive from a particular customer before producing my goods? Am I making a one-of-a-kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later? Do I offer customers the option of “customizing” an otherwise standardized good to meet their specific needs? One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the company’s customers.
| 6,506 | 7,711 |
msmarco_v2.1_doc_00_10045770#14_14804639
|
http://2012books.lardbucket.org/books/an-introduction-to-business-v2.0/s15-operations-management-in-manuf.html
|
Operations Management in Manufacturing and Service Industries
|
Chapter 11
Operations Management in Manufacturing and Service Industries
Chapter 11 Operations Management in Manufacturing and Service Industries
The Challenge: Producing Quality Jetboards
11.1 Operations Management in Manufacturing
Learning Objectives
Operations Management in Manufacturing
Planning the Production Process
Production-Method Decisions
Make-to-Order
Mass Production
Mass Customization
Facilities Decisions
Site Selection
Capacity Planning
Key Takeaways
Exercises
11.2 Facility Layouts
Learning Objective
Key Takeaways
Exercise
11.3 Managing the Production Process in a Manufacturing Company
Learning Objective
Purchasing and Supplier Selection
E-Purchasing
Inventory Control
Just-in-Time Production
Material Requirements Planning
Work Scheduling
Key Takeaways
Exercise
11.4 Graphical Tools: PERT and Gantt Charts
Learning Objective
Gantt Charts
PERT Charts
Key Takeaways
Exercise
11.5 The Technology of Goods Production
Learning Objective
Computer-Aided Design
Computer-Aided Manufacturing
Computer-Integrated Manufacturing
Flexible Manufacturing Systems
Key Takeaways
Exercise
11.6 Operations Management for Service Providers
Learning Objectives
Operations Planning
Operations Processes
Facilities
Site Selection
Size and Layout
Capacity Planning
Managing Operations
Scheduling
Inventory Control
Key Takeaways
Exercise
11.7 Producing for Quality
Learning Objective
Quality Management
Customer Satisfaction
Employee Involvement
Continuous Improvement
Statistical Process Control
Benchmarking
International Quality Standards
ISO 9000 and ISO 14000
Outsourcing
Outsourcing in the Manufacturing Sector
Outsourcing in the Service Sector
Key Takeaways
Exercises
11.8 Cases and Problems
Learning on the Web (AACSB)
How to Build a BMW
Career Opportunities
Wanted: Problem Solvers and Creative Thinkers
Ethics Angle (AACSB)
Team-Building Skills (AACSB)
Growing Accustomed to Your Fit
The Global View (AACSB)
What’s the State of Homeland Job Security?
|
Am I making a one-of-a-kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later? Do I offer customers the option of “customizing” an otherwise standardized good to meet their specific needs? One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the company’s customers. Make-to-Order
At one time, most consumer goods, such as furniture and clothing, were made by individuals practicing various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a make-to-order strategy
Production method in which products are made to customer specification. , is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications. Mass Production
Figure 11.2
Automakers produce a high volume of cars in anticipation of future demand.
| 7,127 | 8,319 |
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