Class_2_MGR - MANAGERIAL ACCOUNTING - IIE 211 CLASS 2 Korea...

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MANAGERIAL ACCOUNTING - IIE 211 CLASS 2 Korea U Intranet http://iie.korea.ac.kr/intranet/ Garrison Text Site www.mhhe.com/ garrison11e eBook Text Site http://ebooks.primisonline.com CHAPTER 2 COST TERMS, CONCEPTS, AND CLASSIFICATIONS LECTURE NOTES (CLASS 2 _ Wednesday, 7/4) 1. REVIEW PRIOR CLASS 2. CHAPTER OVERVIEW 3. REVIEW EXERCISE 2-1, 2-3 and 2-4 (Cost Of Goods Sold) 4. REVIEW PROBLEM 2-19 5. HINTS: HW due THURSDAY – Exercise 2-7 and Problem 2-26 CHAPTER 2 OVERVIEW A. General Theme. Costs can be classified in a number of ways—depending on the purpose of the classification. For example, classification of costs for purposes of determining inventory valuations and cost of goods sold for external reports differs from the classification of costs that would be carried out to aid decision-making. It is important to note that the classifications of costs are not mutually exclusive. That is, a particular cost may be classified in many different ways—depending on the purpose of the classification. B. Cost Classifications for Preparing External Financial Statements. (Exercises 2- 1, 2-2, 2-3, 2-4, 2-11) This section of the chapter focuses on the problem of valuing inventories and determining cost of goods sold for external financial reports. Note the difference between a manufacturing and a merchandising company. Manufacturing companies convert raw materials into a product. The company then sells that product either to other companies or, less commonly, directly to individuals. “Manufacturing” includes restaurants, movie studios, and other service-type companies as well as the more obvious examples of manufacturing such as automobile and clothing production. Merchandising companies, by contrast, buy finished products and resell the products to customers. Valuing inventories and determining cost of goods sold is simple in a merchandising company, but is difficult in a manufacturing company. For that reason, we concentrate on manufacturing in this section of the chapter. C. Cost Classifications to Describe Cost Behavior. Managers often need to be able to predict how costs will change in response to changes in activity. The activity might be the output of goods or services or it might be some measure of activity internal to the company such as the number of purchase orders processed during a period. In this chapter, nearly all of the illustrations assume that the activity is the 1
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MANAGERIAL ACCOUNTING - IIE 211 CLASS 2 output of goods or services. In later chapters, other measures of activity will be introduced. While there are other ways to classify costs according to how they react to changes in activity, in this chapter we introduce the simple variable and fixed classifications. A variable cost is constant per unit of activity but changes in total as the activity level rises and falls. A fixed cost is constant in total for changes in activity within the relevant range. (Just about any cost will change if there is a big enough change in activity. Fixed
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This note was uploaded on 10/09/2011 for the course ACCOUNTING 211 taught by Professor Edwardl.monsour during the Summer '07 term at Korea University.

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Class_2_MGR - MANAGERIAL ACCOUNTING - IIE 211 CLASS 2 Korea...

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