11and13_OverheadsForChen - Objectivesfortoday&nextclass...

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ACCY 302 (Chen) I. Product costs for financial reporting vs. decision-making more cost accounting concepts details of absorption costing variable costing II. Costs for decision-making steps in the process information needed II. Pitfalls to avoid when identifying relevant information III. Identifying relevant information for decisions
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ACCY 302 (Chen) I.  Product costs for financial  reporting vs. decision-making
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ACCY 302 (Chen) Product costs and cost accounting Cost accounting: The part of an organization's management control systems (remember these from Part I?!) that measures costs for the purposes of: financial reporting management decision-making The information needed for these purposes can differ, as we'll see using "products" as our cost objective
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ACCY 302 (Chen) Cost accounting - Accumulation and allocation A cost accounting system includes two processes: 1) Cost accumulation collecting costs using some "natural" classification system 2) Cost allocation tracing and reassigning accumulated costs to one or more cost objectives (remember these?)
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ACCY 302 (Chen) Cost accounting - Accumulation and allocation  (continued) In general, all organizations accumulate costs for products in the same way, using the same "natural" classification system ...because for financial reporting, costs for products must be allocated the same way - Absorption costing is required by GAAP - Absorption costing is based on the distinction between product costs and period costs
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ACCY 302 (Chen) Product cost accumulation with absorption  costing   (continued) product costs costs that are identified with products produced or  purchased for resale included in inventory accounts on the balance sheet for manufacturers, this includes all costs of production (often  called "manufacturing costs") for wholesalers and retailers, this includes all costs of products  purchased for resale this is easy to measure so we won't focus on these types of  organizations
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ACCY 302 (Chen) Product cost accumulation with absorption  costing   (continued) direct materials (DM) acquisition costs of all materials that can be physically identified as part of the final product direct labor (DL) wages of the labor force that can be traced specifically to the final product manufacturing overhead (OH) all other costs associated with the manufacturing process a.k.a., indirect manufacturing overhead, factory overhead, factory burden direct  costs indirect  costs Product costs are further broken down into:
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ACCY 302 (Chen) Product cost accumulation with absorption 
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11and13_OverheadsForChen - Objectivesfortoday&nextclass...

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