The cost accounting for manufacturers we have studied in this chapter has a very clear connection to the way financial accounting is reported. Exhibit 16.1 demonstrates the difference between the production process and the administration process in a manufacturing organization. U.S. cost accounting makes a clear functional distinction between costs related to the production process (e.g., direct materials, direct labor, and manufacturing overhead) versus the administration process (e.g., selling costs and general administration costs). Further, Exhibit 16.6 demonstrates that the flow of direct materials costs and direct labor costs through the accounting system, as well as the allocation of manufacturing overhead costs, allows U.S. companies to determine product costs and easily compute cost of goods sold for financial reporting purposes.

However, cost accounting (comptabilite analytique) in France is explicitly decoupled from financial accounting. This means that the chart of accounts French companies use for cost accounting is completely different from the chart of accounts used for financial accounting. France has a well-developed set of financial accounting rules, comparable to U.S. GAAP, embodied in the Plan Comptable General (PCG). The PCG requires financial accounting reports in France to organize and report costs by their inherent nature (materials, labor, depreciation, etc.). Costs are not assigned to products or to departments. Hence, one wouldn't expect to see a French company report Cost of Goods Sold or Selling and General Administrative Expense.

If costs are not being assigned to products, departments, or operations within the organization, how does the organization perform the management processes of planning, controlling, and evaluating? Actually, French companies do not have a tradition of using costs to manage their companies. In fact, French business has had a long tradition of being led by engineers, not accountants and financiers, and even today, many managing directors in France are engineers by profession or training.

Given the French perspective on financial accounting, what kinds of numbers and reports might you expect to find in a French company? Would you expect that French companies reconcile their comptabilite analytique systems with their financial accounting systems, as U.S. companies typically do?

Transcribed Image Text:

EXHIBIT 16.1 Broyman Furniture Company Layout Sold finished goods are ahipded to! ctomers! The Flow of Product Costs The Flow of Products Viee-President Vice Prosident Sales Finished Goods Manufacturing Overhead Work-in-Process Inventory Manufacturing Warehouse Sales Statt Cost of manufacturing overhead applied to production Cost of goods manufactured Plant Manager Vice Prosident Administration Controller Finishing Department Direct Labor Vice Prasident Finance Salaries & Wages Payable Washrooms Finished Goods Machining Department Inventory Cost of direct labor used Cutting Department Cost of goods sold Production Staff Administrative in production staffe Offices President Raw Materials Warehouse Cost of Goods Sold Raw Materials Factory Floor Inventory Cost of raw Administrative Manufacturing Facility materials used Offices in production Rew materlats (wood, metal, ee.) re dellvpre ----