Ch 02 - Chapter Two Basic Managerial Accounting Concepts 1...

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1 Chapter Two Basic Managerial Accounting Concepts
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Learning Objectives Explain the meaning of cost and how costs are assigned to products and services. Define the various costs of producing products and services, as well as the costs of selling and administration. Prepare income statements for manufacturing and service organizations.
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3 Objective 1 Explain the meaning of cost and how costs are assigned to products and services.
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4 Example A wood furniture manufacturer buys lumber for $10,000. Cost of the lumber is the amount given up: $10,000.
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5 Expired costs are called EXPENSES Expenses As costs are used up in the production of revenues, they are said to expire.
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6 Price Amount charged for products or services Cost Amount paid for something Cost vs. Price Be careful: Cost and price are not the same!
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7 Recorded in Telephone Expense account Telephone Expense Bal. $800 +150 $950 Received Telephone bill $150 Phone Bill Accumulating Costs
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8 Cost Objects Any item for which costs are measured and assigned Examples: Products Customers Departments Regions
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9 Sales Dept. Manufacturing Dept. Assigning Costs Let’s say the Telephone Expense was incurred by the Sales and the Manufacturing Departments The Sales and Manufacturing Departments are the cost objects
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Telephone Expense Bal. $800 +150 $950 Sales Dept. Dept. 10 $350 $600 The accountant assigned the Telephone Expense to the two cost objects. Assigning Costs
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11 Assigning Costs Costs can be assigned in a number of ways Some methods are more accurate but are more time consuming Others are more simple but less precise
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12 Direct Costs Costs that can be easily and accurately traced to a cost object Relationship between the cost and the object can be physically observed
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13 Indirect Costs Costs that cannot be easily traced to a cost object Relationship between the cost and the object not easily observed Assigned through allocation
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14 Other Categories of Cost Variable Cost : Increases in total as output increases and decreases in total as output decreases Fixed Cost : Total does not increase as output increases and does not decrease as output decreases Opportunity Cost : Benefit given up or sacrificed when one alternative is chosen over another
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Objective 2 Define the various costs of producing products and services, as well as the costs of selling and administration.
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16 Output One of the most important cost objects of a company is its output There are two types of output: Tangible products Services
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17 Tangible Products Goods produced by converting raw materials through the use of labor and capital inputs Produced by manufacturing organizations
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18 Services Tasks or activities performed for a customer or an activity performed by a customer using an organization’s products or facilities Produced by service organizations
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19 Cost Types Product costs Associated with the manufacture of goods or the provision of services Nonproduction costs All other costs
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This note was uploaded on 04/15/2008 for the course ACCT 2020 taught by Professor Lui during the Spring '08 term at North Texas.

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Ch 02 - Chapter Two Basic Managerial Accounting Concepts 1...

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