Lecture_Notes_Chapter_2 - Chapter 2 Managerial Accounting...

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Chapter 2 Managerial Accounting Lecture Notes A. Classifications of manufacturing costs (e.g., direct materials, direct labor, and manufacturing overhead): i. Direct materials - Raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it. A. Indirect Materials have one of the following characteristics: 1. They do not physically become part of the finished product. 2. They cannot be traced because their physical association with the finished product is too small in terms of cost. iii. Direct labor - The work of factory employees that can be physically and directly associated with converting raw materials into finished goods. A. Indirect labor is the work of factory employees that has no physical association with the finished product, or for which it is impractical to trace the costs to the goods produced. iv. Manufacturing overhead - Includes all manufacturing costs except direct materials and direct labor. These costs cannot be easily traced to specific units produced (also called indirect manufacturing cost, factory overhead, and factory burden). 1. Includes indirect materials that are part of the finished product, but that cannot be easily traced to it. 2. Includes indirect labor costs that cannot be conveniently traced to the creation of products. 3. Other examples of manufacturing overhead include: maintenance and repairs on production equipment, heat and light, property taxes, depreciation and insurance on manufacturing facilities, etc. Classifications of nonmanufacturing costs (also called selling, general and administrative, or S, G & A costs).
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