ACCT 230
January 31, 2006
Professor Stout
PROFESSOR: First of all, make sure everybody is in the right place. We will
have some logistical problems at the beginning. I have an assistant that will be in charge.
I will go through these things about not to piss me off. I know people want to
add.
I ask for your CSUN GPA and your grade in 220. I do not know how many adds
I can take.
Then I will take the adds. There is no fair way. I will take the best students.
When they do better it makes me feel I did a better job.
I will take the students with the higher GPAs and grade in 220.
(for people adding).
Questions on that?
Okay. Let’s just right in. I need to take the roll the first day. We will not be
doing this from now on. We will have a seating chart. The assistant will take the roll
from the seating chart. If there is no butt sitting in the chair, you will be marked absent.
When I call the roll answer loudly.
(Roll).
Anybody thought they were on the roll that I did not call?
How many people are trying to add? People in the back, are you trying to add?
MALE STUDENT: Yes.
PROFESSOR: Okay. All of the adds will go through Suki, my assistant. She will
decide. She will say I told her what to do and I will say she is handling it.
Questions about that?
A little bit about me: I was an undergraduate at this institution long, long ago.
Okay? Just like you.
I graduated as an accounting major. I started working on my masters. It was not
fast enough. So I took a leave of absence from the firm. I taught during that semester. I
liked teaching. I stayed in teaching. Finished my fasted masters and got dock trait.
I am a California CPA. I have my own practice primarily in the tax area which I
have done forever. So I do both sides of the street.
I taught here for four years. I left and taught elsewhere for eight. I have now
been back for 21. It is really amazing how a guy who is only 32 can have done all of
those things that I have done (CLASS LAUGHS).
Okay. I think the key is that I peeked very early and it has been down hill ever
since (CLASS LAUGHS).
As you can tell, I am pretty sarcastic on certain things. This class can be very,
very boring. Okay? Accounting is not known for being too stimulating. I will do my
best to make it as interesting as I can, consistent with covering the material. The material
is not all that stimulating. But we will do our best to get some jokes in there. Have
sexual innuendos whenever we can. There are only a couple of things that I look, food
and sex. When we talk about manufacturer it will be all about food processing.
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(CLASS LAUGHS).
I like to get everybody here on time. To do that I like to start the class off with a
joke. So how many would like to start the class off with a joke every day?
(CLASS LAUGHS) how many would not?
(One hand raised in the back) are you trying to add or are you in? (CLASS
LAUGHS) don’t let him in.
What we are going to do is I tell the joke today and then we will have selected
members of the class give the joke each day.
Here are the criteria: not supposed to get me in trouble. The jokes that are off
base are ethnic jokes, racial jokes, or jokes that make fun of people’s preferences. Now,
you are saying what else is there? (CLASS LAUGHS) there are lots of other jokes that
are funny.
Basically accounting jokes are not very funny. Lawyer jokes are much better.
I will give you one from a couple of semesters okay. A girl said what position
would a couple use if they wanted to conceive the ugliest baby in the world? I said, I
don’t know. She said, ask your parents (CLASS LAUGHS).
The people that laughed the most when I told them were my parents. (CLASS
LAUGHS).
So, we—Cheryl, you came in late?
FEMALE STUDENT: Yeah.
PROFESSOR: Okay. You have a joke for Thursday (CLASS LAUGHS) okay?
And Melissa Alberto, you will be ready in case she flakes off.
Okay?
I want to start the seating chart. It will take a while to go around. If you are
enrolled in the class, you sign the seating chart. If you want to add, don’t sign it.
They will sign it so we can read it from the front, not so you can read it from
where you are. So it is reversed. If you have a question where you are signing, ask Suki.
In pencil, last name and first name so it can be read.
If you are enrolled in the class, sign the seating chart.
A couple of things. We need to be on time for class. The seating is really tight.
If you try to squeeze in among all of these people you will cause problems.
Cell phones, hopefully we don’t have to talk about it. My cell phone will not go
off in class and yours should not. Guys, turn off your cell phones. Girls, put it on vibrate
(CLASS LAUGHS).
How many of you have gotten my syllabus off of the web? Not many. How
many had fun with solar yesterday? Great fun.
I love it when you are waiting on there for two hour and it has things on the front
page like click here to tell us your experience with solar. You say I do not have another
two hours to click on that.
The school of business web site is down. So I have a web site for you here. (ON
OVERHEAD).
Go on there and you can down load the syllabus. In addition are Power Point
presentations that I will use in class. If you want to photo copy them you can do them
four or six to a page. You can have those so you don’t have to take as many notes when I
am going through the Power Point presentations.
It says HTTP://www. csun.edu/~hebus... (ON OVERHEAD).
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If you get here on time I may put some dirty pictures on here before class to
encourage people to get here on time.
That is me and my office. I am still trying to get used to JH instead of BB.
There is the web site address.
Office hours, I teach the class before this as well. So office hours (on the
syllabus).
We will be talking about different kinds of costs in here. The types of cost
information that managers use to make decisions about running their business, whether
on a daily basis or long-term planning.
We will try to do eight different learning objectives that are on here. We will talk
about differences between financial accounting and managerial accounting.
We will talk about cost. We will try to classify costs into different categories for
different purposes. We will be able to accumulate these for various cost objectives. To
be able to take on a new order or not. We will talk about over head allocations. We will
talk about break even point, how much does a firm have to sell to break even. Where
their revenues cover their expenses and no more. We will talk about how you calculate
that. We will talk about budgeting. So the company can come up with a plan to move
forwards with.
You will talk about capital expenditures and various ways of calculating if it is
worth while.
Books: book required for this class: Brewer, second edition. How many already
have it? I don’t trust the book store. They don’t order enough.
This one sells for how much?
FEMALE STUDENT: A lot.
PROFESSOR: 154?
Mine should not have the shrink wrap with it. This is for another class. They
only had it that way?
FEMALE STUDENT: You can get it on Amazon for like 90 dollars.
MALE STUDENT: 70 bucks brand new.
PROFESSOR: It is getting cheaper. Where is that?
MALE STUDENT: Half.com.
PROFESSOR: I heard about something over the break that I have never heard
about. You guys have never heard of “my space.com”.
I will go on there and check on your spaces and see if there are any pictures of
you and stuff like that (CLASS LAUGHS).
I personally think that business majors should have an interest in the business
world and should know something about what is going on in the business world.
Some things happening today: the feds are meeting today. Who is going out?
Greenspan. Students need to be aware of things like that. The president is giving his
speech tonight.
I think a good way to do it is with the Wall Street Journal. That is what I do. I
have a sign up sheet. I will pass this around. They lowered the price for 15 weeks
$19.95.
At the end of class hand it to me or Suki.
On grading: we are going to have 2 midterms, 1 hundred points each. Quizzes,
unannounced, short and done after we finish a particular chapter. I am planning on
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giving six and you drop your lowest. If you are not here one day, that is the one you
drop. 50 points for quizzes.
Homework is 50 points. I basically believe that homework is to help you learn
the material. But I have not taught lower division classes in a while so now we will
collect the homework. I don’t like to do it this way but I will allocate points to it. Some
of you can probably use those points. So when we come in we will turn in the homework
and go over it.
Somewhere on here I say that you need to bring two of your homework. One for
you to have and one to turn in. We will turn it in at the beginning of class. Then it is
either here or not here. Then the other one you keep when we go over the homework so
you can correct it. I suggest you do it in red so you know what you corrected.
Attendance, we talked about that. After we get the seating chart, Suki, will take
attendance from that chart. She will do it at the beginning of class. This class is too big
to deal with it later. So you are either here when she does it nor not.
Final will be comprehensive. I use +/- grading. You need to ask questions and
answer questions. I assume if you are asking a question that you have read the chapter
and done your work. If you have not done the work it is not fair to waste our time.
Other than that I welcome your questions. I have taught in this lecture hall
before. I think I can effectively deal with questions. If I am running out of time I will
ask you to see me during office hours. I will try to answer it in a way that makes sense to
you.
Withdrawals: everybody wants to add now. The university has tight enrollment
and budget problems. It is very ineffective cost wise for people to drop classes so they
take up a seat that nobody can use and the next semester they want to take up a seat again
so we are very tight with drops.
Many or most of you work. You have to make money to live. I understand that
but the drop date is February 17th. So up to that date you decide and after that the
university makes a big deal. So you have to decide how many classes you can take, what
your work responsibilities are, your family responsibilities, et cetera. You are the only
one that can decide how much time you have. I think this class is a pretty demanding
class in terms of time spent on it. So you have to decide by February 17th.
Questions on drops?
Nobody has any questions on drops now.
Homework assignments are due on the date assigned. Late not accepted. Here
when collected. Graded on effort. Did you do the homework or not. In class when we
go over it you can make your corrections on yours. So that is why you bring two copies.
One to hand in and one to correct.
You are allowed to repeat the class. Just not with me.
No make up quizzes. Quizzes at the beginning of class. So if we finish chapter
one, the next class we will come in and take the quiz. It will be 5-10 minutes late. If you
walk in late you will not get the quiz. That will be your 0.
Questions on any of this?
Prerequisites? 220.
You are supposed to set up your CSUN E-mail address. Sometimes I might E-
mail the class something so you have to check your CSUN E-mail. You can forward it to
your other hot mail or whatever you happen to use.
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There are some study hints on my web site. Hints for students studying
accounting.
Questions? Sounds fun? Ha?
Schedule of assignments: the bad news is we will be here the whole time. If I let
you out early, when I get my pay check I would feel guilty to cash the thing so I feel
compelled to keep you the whole time.
We will be talking about chapter 1 today. The chapter should be read on the date
that it is indicated, not when you leave class that day. The homework is to be done on
that day. On Thursday the second you should have done what it says on the chart.
There is a lot of stuff in chapter 1 in this book.
The questions at the end of each chapter are broken down into questions; you can
only do them in your briefs (CLASS LAUGHS).
They start numbers them over again.
Make sure you are doing the correct ones.
Everybody understand what they are doing for Thursday?
You get a vacation in April. Final is Thursday, May 25.
I am sure all of you were just thrilled to start school. How many got messed up
when they put the cull-de-sac in?
Other questions?
MALE STUDENT: Is this going to be available on your web site or are you going
to give us a copy of this?
PROFESSOR: On the web site.
Suki, come here. Would you?
In 220 or at your community college the course you took was income planning.
You learned the debits and credits. Financial accounting does all of that sort of stuff. It
is to provide information generally for outsiders. That would be creditors, share holders,
et cetera. They are providing information for the outside.
There are rules for that. What kind of rules did you have under financial
accounting? GAAP. They had principles that you must use. They wanted them to be
consistent.
We will talk about providing information for insiders in the company, for
management. To help them plan for this business, to help them control what goes on in
there and try to make sure that the plans and activities are clear.
We will try to help with this planning, controlling and directing of the inside of
the business. We are not accountable to GAAP.
The things we will be doing: the management of this company will be planning.
They will try to direct and motivate. To get people to do things consistent with the plan.
They will compare the actual results with that plan and make adjustments or corrections
to get back on target and move ahead.
The difference here is that in financial accounting you were dealing with past
numbers. Managerial accounting is more future looking than it is past.
(Power Point) we will start out and formulate some long-term plans and some
short-term plans. I got this a long time ago when I used to teach this class. One time it
was missing. My son is now 25. He was about 12 at the time. I found this missing. He
took it to middle school and he thought it was great to point out body parts to people in
the lunch area. (CLASS LAUGHS).
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At the top we will start formulating long and short-term plans. We will take that
plan and try to implement it. We will try doing what we are supposed to be doing. We
will try to motivate people to do things consistent with that plan.
Then we will try to measure the performance. How have we done? What is
going on with this plan and how are we doing in being consistent with that plan?
We will then take that and try to compare the actual performance with the plans
that we had and we will see where we are meeting our plans and not meeting them.
Where adjustments need to be made and then we start the cycle over again.
We have a plan. We try to meet that plan. Measure what we are doing.
Compare our actual with our budget and then start over again.
I think we have talked about most of this (Power Point) financial planning. Deals
with the past, not the future.
Managerial accounting we don’t need to follow GAAP. We want more timely
information. We have a forward looking perspective more managerial accounting.
Much of this class will be about the manufacturing process. A manufacturer is a
much different proposition from a merchandising company. If you take a hardware store
like home depot. They buy inventory and hope they sell it. They don’t change the
product. They just buy it and put it to the shelf and hope to sell it. That is a
merchandising company. It is in inventory. They basically have one inventory account
called “inventory.” When they sell it, that item comes out of inventory and goes into cost
of goods sold which is a what? It is an expense.
Cost of goods sold is an expense. We no longer have it because the item went
out the door. It is no longer an asset to us. It is a cost. So it is an expense to us.
Take a manufacturing company. The ones building this car for example, it is
very different than a merchandising company. A manufacturer takes different
components and puts them together.
The first component they have is raw material. Here it will be steel, leather and
rubber and all of that. They will take those materials and try to make a car out of them.
What do they have to put with it? Labor. They have to let the labor work on the raw
materials to convert it into a car. So we put labor into it.
The other component we have is manufacturing overhead. Manufacturing
overhead is the hardest thing to deal with because we can’t get our hands around it the
same way. When you look at the car you don’t see the manufacturing overhead in there.
We know how much material and how much labor went into the car but we don’t really
know how much manufacturing overhead.
What is manufacturing overhead? The other things we need to the factory
besides raw material and labor. We need space. We need a building. It is a bitch to
build a car if you don’t have a factory. So we have to buy a building or rent space. What
else? Utilities. It works better if we have electricity to make a car. So we have to have
utilities.
We can’t trace the rent and the utilities to the car. You can’t see them in there
but we know we need that to make a car. We need to have insurance. When we have
workers they work directly on the car. When we have so many workers what do we
need? Supervisor. They do not work on the car but they are overhead.
So direct materials. You can trace it right to it. That is the easiest part. Labor,
we know how many hours you spend working on the car.
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Manufacturing overhead: cost that cannot be traced directly to the product.
Materials that cannot be traced directly to the product or they are so small like maybe
some glue. We don’t have to issue how much. It is available and you use how much you
need. That would be other materials but it is part of overhead because it is not worth it to
measure how much glue is used by each car.
Cost related to the manufacturing facility. All of those three make up
manufacturing overhead.
Indirect materials would be like lubricants and cleaning supplies. The super
visors we need.
Other items: property taxes, depreciation, and.
Now we will start taking these cost and breaking it down more. Chapter 1 does
this. There is a lot of material in chapter 1. One could argue that the rest of the chapters
support what they talk about in chapter 1.
Prime cost is made up of the things that go directly into the product. That is the
direct material and the direct labor. We divide them three ways or two ways. Prime cost
and conversion cost. We take raw material and convert it into a car.
So the labor and overhead make up conversion costs. So see direct labor is part
of prime cost and conversion cost. So we have to break these 3 things into two different
pieces.
Marketing and selling costs. Now we are going to try to sell the car. The key
thing to note here is that the marketing and the selling and administrative costs are not
manufacturing costs. They have nothing to do with making the car. After we get the car
all made now we have to try to sell it and we have costs of running the entity that are not
part of factory costs. This would be the CEO’s salary. This is definitely not traceable to
the car.
Nonmanufacturing costs are expensed off in the period that they are incurred. So
we talk about these in this way:.
I guess we don’t talk about it yet.
So manufacturing costs. Boeing, they make airplanes. Which one would be
manufacturing overhead? (Power Point).
A and D. Depreciation on the factory forklift trucks. The wages of a production
shift super visor.
You can’t just say depreciation is in manufacturing overhead. It is depreciation
of what? Depreciation of something that relates to the manufacturing process is the
manufacturing overhead. Wages of the production shift super visor is overhead because
the super visor does not work on the car. That would be direct labor.
Those costs that I was talking about, the marketing and the administrative costs
are talked about here. We will talk about product cost versus period costs. Now we are
slicing it another way. We are saying does this particular cost relate to making the
product or does it not relate to making the product.
So if it is raw materials, direct labor, manufacturing overhead, it is cost of
making the product. They have a fancy term for it, “product cost.”
The costs that don’t involve the product are called “period costs.” Why?
Because they are expensed off in the current period.
For product costs you will take the material, the labor and the manufacturing
overhead and put them into this inventory account. It goes on the balance sheet as an
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asset. That car now will stay on our balance sheet as an asset until we sell it. Then it
becomes an expense.
It moves over to cost of goods sold which is an expense on the income statement.
What costs went in here?
Product costs. The product costs went into the inventory to build the product.
The other things are called period costs. They are not included in the product. The
examples we have had are administrative cost and marketing expenses. Those things are
not part of the product. They don’t get into the asset called “inventory.” They are
expensed off in the period they are incurred. You can’t store them up. They go directly
to the income statement.
Now we have talked about prime costs and conversion cost and prime cost and
period costs.
Which of the following would be a period cost? (Power Point).
MALE STUDENT: Property taxes?
PROFESSOR: Why? All property taxes? No. The ones on the corporate
headquarters. If that was property taxes on the factory, it would be a manufacturing cost.
What is direct materials? Product cost. Lights? Product cost.
Okay. Where are these going to show up here? On the balance sheet. In 220
you had one account for inventory. That is home depot and everything went into the
inventory account. We will have three categories of inventory. We will have the raw
materials that we buy.
We buy them. Steel, we take it and just put it in there and store it until we use it.
Raw material.
Direct labor, can you store it up? No. So we don’t have an account for that.
When we start making the material we take it out of this account and put it into work in
process. It is partially finished cars. So we take raw material and what do we add to it?
Labor. I will give you a hint, one more thing?
MALE STUDENT: Overhead.
PROFESSOR: We have to add the overhead to it and then this thing starts looking
more like a car. This is where the three things come together is work in process. When it
is done being made it is in finished goods inventory. Everybody see that? It has to go in
that order.
You can’t go from raw material to finished goods. It has to go through work in
process. That is where you mix the three things together. You mush it altogether and
come out with a car.
Ford and GM don’t do this very well or they wouldn’t be losing so much money.
Questions on those three?
Here we go: the raw materials that you haven’t done anything with yet. When
they are partially completed they are work in process. When you are done they go to
finished goods.
Tomorrow is February first. When this manufacturer starts off February, when
they come in tomorrow morning, is there going to be any work in process?
MALE STUDENT: Maybe.
MALE STUDENT: Maybe.
PROFESSOR: Do we have to finish everything we start at the end of January?
No. We have partially completed units. So when we leave today any partially completed
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units are there tomorrow morning and they are still partially completed. So we will start
off February with some things part way done. Then during February we will finish some
of those and start some new ones. Some of that group will be finished. When they are
finished during February we will take them out of work in progress and put them in
finished goods.
At the end of February will our work in progress be 0? No. There will still be
some partially completed units in there.
Here it gives some examples of making a baseball. You have the raw materials.
Then you start work in process. I start putting the ball and yarn around each other and
you come out with a baseball finish.
Cost of goods sold: you did this calculation in 220. Right over here. Hopefully,
you did. You calculated your cost of goods sold. Today, at the close of business, could
we physically count what we sold during January? No. You don’t have it anymore. It is
sold. We say at the beginning of January you had this much inventory. You bought
more stuff during January. This is the total available. If you sold all of that would be left
on the shelf?
MALE STUDENT: 0.
PROFESSOR: At the end of January was 0 left on the shelf? No. Can you count
the stuff that is still here? Yes. We call it ending inventory. We subtract that from
goods sold and end up with this.
We will calculate cost of goods sold but notice what will happen here? We will
have items that were finished and waiting to be sold at the beginning of the month plus
cost of goods finished during February. That would mean stuff we shifted over from
work in progress to finished goods. Some of it could have been started in December and
finished in January. Some of it could have been started in January and finished in
January. That is called cost of goods manufactured, finished.
This was your finished goods at the beginning.
These costs that we are going to have, that go on to the balance sheet, then they
go to cost of goods sold on the income statement. We buy materials. We have raw
materials in our inventory. We put direct labor and overhead with it and work in process.
It is exactly what it says, “work in process.” Then when we are done it goes into finished
goods. The cost of the goods that we finished in February is called what? Cost of goods
manufactured. So when—this arrow here when you move something from here to here,
that is called cost of goods manufactured. How much did we finish in February, that is
the cost of goods manufactured.
Once we finish it, we sell it. Can we sell partially finished goods? Not usually.
Separate is selling and administrative. The others were product costs as opposed
to period costs that are expensed off in the current period.
Which one of these will give you an expense right away? Product cost or period
cost? B and D. C would not work. It is B and D.
A couple more and we will get out of here. When—notice these are equations
here. They are just moving things around.
You have some beginning finished goods. Plus the cost of goods manufactured.
That is the stuff you finished this month. You add those two together and it would be
like goods available for sale. That is the most you could sell. The cars that you had
finished during the beginning and the cars you had finished at the end.
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At the end of the period where are those cars? They are either sold.
MALE STUDENT: Or in a lot somewhere.
PROFESSOR: They are either sold or in a lot somewhere. So we either still have
them or they are sold.
They move this one to the other side. What do you do if you move it over?
Change the sign. So if you change this to the other side of the equation you change the
sign so it becomes minus. So cost of goods sold is equal to beginning finished goods
inventory plus cost of goods manufactured minus ending…
Cost of goods manufactured has several things in it. First of all, you have if you
are talking about January, what was your work in process at the beginning of January.
That stuff is in your schedule.
During this period you had some raw materials at the beginning. You bought
some more raw materials equals the total available raw materials. It is either at one of
two places at the end? Still there or we used it in the product. Therefore, we count how
much raw material is still there at the end and subtract that and you get the raw materials
used. So they come out of raw materials. They go into these manufacturing costs as
direct materials that are in the product.
You need to be able to calculate this. Beginning raw materials was 32. We
bought 276. At the end of the month we had 28 left. How much did we put into
production? C. 280.
32 plus 2 76 made 3 0 8 the most we had available. You need to be able to solve
that.
Cost of goods manufactured. We have our materials that we put in there. We
have our direct labor that we have added during the period. We have our overhead costs.
We have three pieces of this total manufacturing cost.
I think we are out of time. We will pick this up next time. Please buy the book
and please do the homework.
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