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Accounting
Unit 1 Part B
specific objective
Actual costa cost that has occurred
Budgeted costa predicted cost
Cost objectanything of interest for
which a cost is desired (product, customer
order, contract, product line and others).
in an organized manner
Cost assignmenta general term that
includes gathering accumulated costs to a
cost object. This includes:
Tracing accumulated costs with a direct
relationship to the cost object and
Allocating accumulated costs with an indirect
relationship to a cost object
Learning Objective 1
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversio
n
Cost
Manufacturing Costs
Direct
Direct
Materials
Materials
Direct
Direct
Labor
Labor
The Product
Manufacturing
Manufacturing
Overhead
Overhead
Direct Materials
Raw materials that become an
integral part of the product and
that can be conveniently traced
directly to it.
Example:
Example: A
A radio
radio installed
installed in
in an
an automobile
automobile
Direct Labor
Those labor costs that can be
easily traced to individual units of
product.
Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly workers
workers
Manufacturing Overhead
Manufacturing costs that cannot be
traced directly to specific units
produced.
Examples:
Examples: Indirect
Indirect materials
materials and
and indirect
indirect labor
labor
Materials used to support
the production process.
Examples: lubricants and
cleaning supplies used in the
automobile assembly plant.
Selling
Costs
Administrati
ve Costs
Costs necessary to
secure the order and
deliver the product.
All executive,
organizational, and
clerical costs.
Inventory
Expense
Sale
Balance
Sheet
Income
Statement
Income
Statement
Learning Objective 2
Cost classified as to
variability
How
How aa cost
cost will
will react
react
to
to changes
changes in
in the
the
level
level of
of activity
activity
within
within the
the relevant
relevant
range.
range.
Total variable costs
Total variable costs
change
change when
when activity
activity
changes.
changes.
Total fixed costs
Total fixed costs
remain
remain unchanged
unchanged
when
when activity
activity
changes.
changes.
Units
produced
A measure of what
causes the
incurrence of a
variable cost
Miles
driven
Labor
hours
In Total
Per Unit
Variable
Fixed
Learning Objective 3
Direct costs
McGraw-Hill/Irwin
Indirect costs
Learning Objective 4
Cost Flow of
Manufacturing Firm
Selling and
Administrative
Raw Materials
Income
Statement
Expenses
Work in
Process
Finished
Goods
Period
Costs
Cost of
Goods
Sold
Selling and
Administrativ
e
+
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
Costs
Work
In Process
Direct materials
As
As items
items are
are removed
removed from
from raw
raw
materials
materialsinventory
inventoryand
andplaced
placedinto
into
the
the production
production process,
process,they
theyare
are
called
calleddirect
direct materials.
materials.
+
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
Costs
Direct materials
+ Direct labor
+ Mfg. overhead
= Total manufacturing
costs
Work
In Process
Conversion
Conversion
costs
costs are
are costs
costs
incurred
incurred to
to
convert
convert the
the
direct
direct material
material
into
into aafinished
finished
product.
product.
+
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
Costs
Direct materials
+ Direct labor
+ Mfg. overhead
= Total manufacturing
costs
Work
In Process
Beginning work in
process inventory
+ Total manufacturing
costs
= Total work in
process for the
period
All
Allmanufacturing
manufacturingcosts
costsincurred
incurred
during
during the
theperiod
periodare
areadded
addedto
tothe
the
beginning
beginning balance
balanceof
of work
workin
in
process.
process.
Manufacturing
Costs
Beginning raw
Direct materials
materials inventory
+ Direct labor
+ Raw materials
+ Mfg. overhead
purchased
= Total manufacturing
= Raw materials
costs
available for use
in production
Ending raw materials
inventory
Costs
associated
with
associated
with the
the goods
goods that
that
=Costs
Raw materials
used
are
areincompleted
completed
during the
theperiod
periodare
are
production during
transferred
transferredto
tofinished
finished goods
goods
inventory.
inventory.
Work
In Process
+
=
Beginning work in
process inventory
Total manufacturing
costs
Total work in
process for the
period
Ending work in
process inventory
Cost of goods
manufactured
+
=
Beginning work in
process inventory
Manufacturing costs
for the period
Total work in process
for the period
Ending work in
process inventory
Cost of goods
manufactured
Finished Goods
Beginning finished
goods inventory
+ Cost of goods
manufactured
= Cost of goods
available for sale
- Ending finished
goods inventory
Cost of goods
sold
Learning Objective 5
Manufacturing and
Merchandising
Statement
Merchandisers . . .
Buy
finished
goods.
Sell finished
goods.
MegaLoMart
McGraw-Hill/Irwin
Manufacturers .
..
Buy
raw
materials.
Produce and
sell finished
goods.
Balance Sheet
Merchandiser
Current assets
Cash
Receivables
Merchandise
Inventory
Manufacturer
Current Assets
Cash
Receivables
Inventories
Raw Materials
Work in Process
Finished Goods
Balance Sheet
Merchandiser
Current assets
Cash
Receivables
Merchandise Inventory
Partially complete
products some
material, labor, or
overhead has been
added.
Manufacturer
Current
Assets
Materials waiting to
Cash
be processed.
Receivables
Inventories
Raw Materials
Work in Process
Finished Goods
Completed products
awaiting sale.
$ 14,200
234,150
$ 248,350
(12,100)
$ 236,250