Chapter 2 - Chapter 2 Costs Terms, Concepts and...

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Chapter 2 Costs Terms, Concepts and  Classifications  Suggested Problems:  Exercises 2-1, 2-1, 2-5, 2-6, 2-7, 2-8, 2-9
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The Product The Product Direct Materials Direct Labor Manufacturing Overhead Manufacturing Costs
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Direct Materials   Raw materials that become an integral part of  the product and that can be conveniently  traced directly to it. Example:    A radio installed in an automobile
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Direct Labor Those labor costs that can be easily traced to  individual units of product. Example:    Wages paid to automobile assembly workers
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Manufacturing costs that  cannot  be traced  directly to specific units produced. Manufacturing Overhead Examples:    Indirect labor and indirect materials Wages paid to employees  who are not directly  involved in production  work.   Examples:  maintenance  workers, janitors and  security guards. Materials used to support  the production process.   Examples: lubricants and  cleaning supplies used in the  automobile assembly plant .
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Non-manufacturing Costs Selling  Costs Costs necessary to get  the order and deliver  the product. Administrative  Costs All executive,  organizational, and  clerical costs.
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Product Costs Versus Period  Costs     Product costs   include  direct materials, direct  labor, and  manufacturing  overhead. Period costs  include all  selling costs and  administrative costs.   Inventory Cost of Good Sold Balance Sheet Income Statement Sale Expense Income Statement
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Product Costs and Period Costs Product Cost Period Cost Inventory Accounts Cost of Goods Sold Selling General and Administrative Expense Income Statement Balance Sheet
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Product and Period Costs Product costs are Direct material Direct labor Manufacturing  Overhead Indirect material Indirect labor Utilities Depreciation Any other  manufacturing cost Period Costs are Selling cost Administrative cost
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Quick Check    Which of the following costs would be considered a  period rather than a product cost in a manufacturing  company? A. Manufacturing equipment depreciation. B. Property taxes on corporate  headquarters. C. Direct materials costs. D. Electrical costs to light the production            facility.
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Classifications of Costs Direct Material Direct Labor Manufacturing Overhead Prime Cost Conversion Cost Manufacturing costs are often classified as follows:
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Comparing Merchandising and  Manufacturing Activities Merchandisers . . . Buy finished goods. Sell finished goods.  Manufacturers . . .
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This note was uploaded on 09/28/2008 for the course ACCT 285 taught by Professor Carver during the Fall '08 term at Iowa State.

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Chapter 2 - Chapter 2 Costs Terms, Concepts and...

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