Ch 2 Notes (2) - Chapter 2 MANAGERIAL ACCOUNTING & COST...

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Chapter 2 Learning Objectives for this Chapter LO1 Identify the major differences and similarities between financial and managerial accounting. LO2 Identify and give examples of each of the three basic manufacturing cost categories. LO3 Distinguish between product costs and period costs and give examples of each. LO4 Prepare an income statement including calculation of the cost of goods sold. LO5 Prepare a schedule of cost of goods manufactured. LO6 Understand the differences between variable costs and fixed costs. LO7 Understand the differences between direct and indirect costs. LO8 Understand cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs.
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Information needs of managers include using accounting information to: Identify problems Identify solutions to problems Evaluate the effectiveness of decisions, such as continuous improvement efforts Managers need management accounting information for: planning controlling decision making THE PLANNING AND CONTROL CYCLE MANAGERIAL AND FINANCIAL ACCOUNTING CONTRASTED Accounting Recording Estimating Organizing Summarizing Financial Accounting Managerial Accounting External Focus Internal Focus Focus on the past Focus on future Emphasis on: objectivity, verifiability precision Emphasis on: Relevance Ttimeliness Focus on entire operation (summary information) Focus on detailed segment reports (departments, products, customers) Must follow GAAP Not required to follow GAAP Mandatory for external reporting Not mandatory
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AN OVERVIEW OF COST CLASSIFICATIONS Purpose of classification Cost classifications Preparing an income statement and balance sheet • Product costs • Direct materials • Direct labor • Manufacturing overhead • Period costs (nonmanufacturing costs) • Selling costs • Administrative costs Predicting changes in cost due to changes in activity • Variable costs • Fixed costs Assigning costs • Direct costs • Indirect costs Making decisions • Differential costs • Sunk costs • Opportunity costs Manufacturing Cost Classifications Manufacturing Company Costs Manufacturing Costs (Product Costs) Direct  Materials Direct  Labor Manufacturing  Overhead Prime  Conversion  Nonmanufacturing Costs (Period Costs) Selling Costs Administrative Costs
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COST FLOWS IN A MANUFACTURING COMPANY COST FLOWS EXAMPLE EXAMPLE: Ryarder Company incurred the following costs last month: Purchases of raw materials. .......................... $200,000 Direct labor. .................................................. $270,000 Manufacturing overhead. .............................. $420,000 But: Some of the goods sold this month were produced in previous months. Some of the costs listed above were incurred to make goods that were not sold this month.
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This note was uploaded on 02/28/2012 for the course ACCT 2361 taught by Professor Severance during the Spring '08 term at Texas State.

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Ch 2 Notes (2) - Chapter 2 MANAGERIAL ACCOUNTING & COST...

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