Managerial Accounting - Chapter 2.docx - MANAGERIAL ACCOUNTING CHAPTER 2 Basic Managerial Accounting Concepts The Meaning and Uses of Cost o Determine

Managerial Accounting - Chapter 2.docx - MANAGERIAL...

This preview shows page 1 - 3 out of 11 pages.

MANAGERIAL ACCOUNTING – CHAPTER 2 Basic Managerial Accounting Concepts The Meaning and Uses of Cost o Determine the cost of products, services, customers, and other items to managers. o Cost The amount of cash or cash equivalent sacrificed for goods and/or services that bring a current or future benefit to the organization. Accumulating Costs o The way that costs are measured and recorded. Labor Recorded Product/Salary Expense Assigning Costs o The way that a cost is linked to some cost object. o What is the cost object for the labor? To support manufacturing? To support selling the product? Cost Objects o Managerial accounting systems are structured to easure and assign costs. o Cost object Any item such as a product, customer, department, project, geographic region or plant, for which costs are measured and assigned. Assigning Costs to Cost Objects o Costs can be assigned to cost objects in a number of ways. o The choice of a method depends on a number of factors, such as the need for accuracy. o The objective is to measure and assign costs as well as possible, given management objectives. Production Cost vs. Period Cost o Production Cost (Manufacturing Costs) Materials labor overheard o Period Cost Sales Administrative Direct Cost vs. Indirect Cost o Direct Cost (Prime Costs) Costs that can be easily and accurately traced to a cost object. When a cost is easy to trace, we mean that the relationship between the cost and the object can be physically observed, is easy to track, and results in more accurate cost assignments. Example: labor, materials o Indirect Costs Costs that cannot be esily and accurately traced to a cost object. Allocation
Image of page 1
An indirect cost is assigned to a cost object by using a reasonable and convenient method. Allocating indirect costs is based on convenience. Fixed Cost vs. Variable Cost o Costs can be direct or indirect, and are analyzed by their behavior patterns, or the way in which a cost changes when the level of the output changes. o Variable cost Increases in total as output increases and decreases in total as output decreases. Example: Material for a pants manufacture is a variable cost o Material costs will depend based on your production requirements. o Fixed cost A cost that does not increase in total as output increases and does not decrease in total as output decreases. Example: Factory rent o Opportunity cost The benefit given up or sacrificed when one alternative is chosen over another. Providing Cost Information o Managerial accountants must decide: What types of managerial accounting information to provide to managers How to measure such information When and to whom to communicate the information o Managers rely on managerial accounting information that is prepared and provides the best analysis for the decision at hand.
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 11 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors