Notes_Chapter_02 - Chapter 2: Managerial Acct. and Cost...

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Chapter 2: Managerial Acct. and Cost Concepts I. MANAGERIAL VS. FINANCIAL ACCOUNTING  1
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II. Cost Classifications: Product vs. Period costs A. PRODUCT COSTS Includes all costs required to purchase or manufacture inventory Three categories of Product Costs for the manufacturer : 1. Direct materials - Raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it. 2. Direct labor - Labor costs that can be easily traced to individual units of product. 3. Manufacturing overhead - Includes all manufacturing costs except direct materials and direct labor; not easily traced to specific units produced (also called indirect manufacturing cost, factory overhead, and factory burden). o Includes indirect materials that are part of the finished product, but that cannot be easily traced to it. o Includes indirect labor costs that cannot be conveniently traced to the creation of products. 2
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o Other examples of manufacturing overhead include: TREATMENT OF PRODUCT COSTS: B. PERIOD or Non-manufacturing costs o Selling costs – Includes all costs necessary to secure customer orders and get the finished product into the hands of the customer. o Administrative costs – Includes all executive, organizational, and clerical costs associated with the general management of an organization. TREATMENT OF PERIOD COSTS: C. Other Cost Classifications for Product Costs Prime cost - Direct materials cost plus direct labor cost. Conversion cost – Direct labor cost plus manufacturing overhead costs. 3
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Example: Product vs. Period Costs Below is information related to Foray Molding, a manufacturer of plastic roping supplies. Plastic Used
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This note was uploaded on 06/01/2011 for the course ACCOUNTING 230 taught by Professor Allen during the Spring '11 term at Texas A&M.

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Notes_Chapter_02 - Chapter 2: Managerial Acct. and Cost...

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