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Unformatted text preview: Chapter 2: Basic Chapter 2: Basic Management Accounting Concepts
Please pickup handout in the back of the room Differentiate: Differentiate: Chapter 2 – Basic Managerial Accounting Concepts Define: Between Product costs and Period expenses. Between direct and indirect costs Relevant / Irrelevant costs Direct Materials, direct labor, and manufacturing overhead. Fixed, and Variable Calculate and Understand: Material, labor, and overhead costs and how these costs are assigned and flow through the company Cost Vs. Expense Cost Vs. Expense Cost is the value of what you trade to get what you want. Cost is called an Asset if: Cost is called an Expense if Benefit exceeds one accounting period Benefit is consumed within one accounting period. Cost vs. Price
Cost & Price are not the same thing Cost
What we pay for something Price
Amount we charge our customers for our products or services Major Cost Classifications: Cost Major Cost Classifications: Cost Objects Cost object: Any activity or item for which a separate cost measurement is desired.
Cost Object An Activity Examples Repairing equipment, testing products manufactured for quality Paper towels, computers, automobiles (purchased or manufactured) Performing surgery, accounting, legal Designing a house, constructing a bridge A Product A Service A Project A Geographic Region A Department A state, a city, a county Marketing, operations, accounting Comparing Merchandising and Comparing Merchandising and Manufacturing Activities
Merchandisers . . . Merchandisers . . . Manufacturers . . . Manufacturers . . . Buy finished goods. Sell finished goods. Buy raw materials. Produce and sell finished goods. SaleMart Assigning Costs • Costs can be assigned in a number of ways Some methods are more accurate, but time consuming While others are quite simple but not as precise
These methods will be discussed in the succeeding chapters.
7 • • Major Cost Classifications: Major Cost Classifications: Direct Costs and Indirect Costs
Direct costs Costs that can be easily and conveniently traced to a unit of product or other cost object. Indirect costs Costs that supports more than one cost object must be allocated to be assigned to a unit of product or other cost object. Output
One of the most important cost objects of a company is its output. Two types of output:
Tangible Products Services 9 Major Cost Classifications: Product Costs vs Period Costs
3 Product Costs Costs associated with making the products available and ready to sell. • Included as part of inventory (balance sheet) until the product is sold. Then expensed on income statement as cost of goods sold.
3 Period Costs Costs that are not product costs:
Selling Costs Administrative • Generally, expensed on income statement when incurred. Classifications of Product Classifications of Product Costs in Manufacturing Companies
Direct Material Direct Labor Manufacturing Overhead (Indirect) The Product
Cost Object Classifications of Costs in Classifications of Costs in Manufacturing Companies
Manufacturing costs are often combined as follows:
Direct Material Direct Labor Manufacturing Overhead Prime Cost Conversion Cost Total Product Cost
Direct Materials + Direct Labor + Overhead Per Unit Cost
Total Product Cost Number of Units Produced 13 Let’s work a problem. ...
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This note was uploaded on 10/27/2009 for the course ACC 240 taught by Professor Karengeiger during the Spring '07 term at ASU.
- Spring '07
- Managerial Accounting