Mowen3e Ch02--Revised

Mowen3e Ch02--Revised - Chapter Two Basic Managerial...

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Chapter Two Basic Managerial Accounting Concepts
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Learning Objectives 1. Explain the meaning of cost and how costs are assigned to products and services. 2. Define the various costs of manufacturing products and providing services as well as the costs of selling and administration. 3. Prepare income statements for manufacturing and service organizations.
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OBJECTIVE 1 Explain the meaning of cost and how costs are assigned to products and services.
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Cost Amount of cash or cash equivalent sacrificed for goods and/or services Expected to bring a current or future benefit to the organization Let’s look at an example
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Example A wood furniture manufacturer buys lumber for $10,000 Therefore: Cost of the lumber is the amount given up… $10,000
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Expenses As costs are used up in the production of revenues, they are said to expire. Expired costs are called… Expenses
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Cost vs. Price Be careful! Cost and Price are not the same thing Cost Price Amount we charge our customers for our products or services What we pay for something
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Accumulating Costs Received telephone bill Recorded in Telephone Expense account Telephone Expense + $150 Bal. $800 $950 $150 Phone Bill
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Accumulating Costs Telephone Expense + $150 Bal. $800 $950 This is helpful but managers also need to know which departments used the $950 in Telephone Expense In other words, managers want to know how costs are assigned to cost objects.
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Cost Objects Any item for which costs are measured and assigned Examples: Products Customers Departments Regions Let’s continue with out example
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Assigning Costs Let’s say the Telephone Expense was incurred by the Sales and the Manufacturing Departments The Sales and Manufacturing departments are cost objects Sales Dept. Manufacturing Dept.
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Assigning Costs Sales Dept. Manufacturing Dept. Telephone Expense + $150 Bal. $800 $950 $350 $600 The accountant assigns the Telephone Expense to the two cost objects.
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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.
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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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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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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
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Other Categories of Cost 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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One of the most important cost objects of a company is its output. Two types of output:
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This note was uploaded on 05/04/2011 for the course ACCOUNTING 2102 taught by Professor Wurst during the Spring '11 term at Temple.

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Mowen3e Ch02--Revised - Chapter Two Basic Managerial...

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