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Studocu is not sponsored or endorsed by any college or university Chapter 2 - Summary - Managerial Accounting 11e Introductory Management Accounting (Kwantlen Polytechnic University) Studocu is not sponsored or endorsed by any college or university Chapter 2 - Summary - Managerial Accounting 11e Introductory Management Accounting (Kwantlen Polytechnic University) Downloaded by Phuong Dinh ([email protected]) lOMoARcPSD|27975375
CHAPTER 2 COST TERMS, CONCEPTS, AND CLASSIFICATIONS I. GENRAL COST CLASSIFICATIONS (Identfy and give examples of each of the three basic manufacturing cost categories.) A. Manufacturing Costs: direct materials, direct labour, manufacturing overhead i. Direct materials - Raw materials that become an integral part of the fnished product and that can be physically and conveniently traced to it. E.g. seats Bombardier purchases from subcontractors to install in its passenger trains and the components NAD Electronic uses in its stereo amplifers. (Indirect materials - raw materials that the costs of directly tracing them to the fnished products exceed the benefts of doing so. E.g., glue or solder) ii. Direct labour - consists of labour costs that can be easily (physically and conveniently) traced to individual units of product. E.g. assembly-line workers. (Indirect labour - cannot be physically traced to the creaton of products, or that can be traced only at great cost and inconvenience/ E.g. Janitors, supervisors, materials handlers, and security personnel) iii. Manufacturing overhead - all costs of manufacturing except direct materials and direct labour. E.g. indirect materials, indirect labour, maintenance and repairs on producton equipment, heat and light, property taxes, depreciaton, and insurance. Manufacturing overhead combined with direct labour is called conversion cost. Direct labour combined with direct materials is called prime cost. B. Classifcaton of Manufacturing labour costs The classifcaton of direct labour and indirect labour costs is relatvely straightorward. (E.g. Janitorial wages are usually classifed as overhead because they represent an indirect cost, as do payroll costs for supervisors.) Overtme premium represent the extra hourly wage rate paid to producton workers who are required to work additonal hours beyond their standard employment contract. Employee benefts E.g. employment taxes, extended medical coverage or pension costs paid by the employer C. Non-manufacturing costs Marketng or selling costs (order-getng E.g. advertsing, sales travel, and order- flling costs E.g. packing, shipping) - all costs necessary to secure customer orders and get the fnished product or service to the customer. Administratve costs - all executve, organizatonal, and clerical costs associated with the general management of an organizaton rather than with manufacturing, marketng, or selling. E.g. accountng, human resource, public relaton. Downloaded by Phuong Dinh ([email protected]) lOMoARcPSD|27975375
II. PRODUCT COSTS VS PERIOD COSTS (Distnguish btw product costs and period costs, and give examples of each.) A. Product Costs - all costs involved in acquiring or making a product. These costs consist of direct materials, direct labour, and manufacturing overhead. Product costs will be present in inventories and COGs. B. Period Costs - these costs are expensed on the income statement in the period in which they are incurred, using the usual rules of accrual accountng. E.g. Sales commissions and advertsing, executve salaries, public relatons and other non-manufacturing costs. III. COST CLASSIFICATIONS ON FINANCIAL STATEMENTS (Prepare an income statement, including the calculaton of cost of goods sold) A. The Balance Sheet Merchandising companies have only one class of inventory - goods purchased form suppliers that are awaitng resale to customers. Downloaded by Phuong Dinh ([email protected]) lOMoARcPSD|27975375
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