Basic Management Accounting Concepts - Managerial Accounting |, Study notes of Management Accounting

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Basic Management

Accounting

Concepts

Hey, we’re Dashboard Confessional. Remembering what you learned in Financial Accounting will help with this chapter!

Chapte

r Two

One of the most important objectives of an

organization to determine cost for a good or service

Incurred to produce future benefits

Reducing costs demonstrates improved efficiency

Expenses are expired costs that are deducted from

revenues on an income statement

What’s up with costs? These are important facts.

Manufacturing Costs The Product Direct Labor Direct Material Manufacturing Overhead

Define the three components of producing a product. Raw Materials

• (^) Materials directly traced to the final product Direct Labor
• (^) Labor directly traced to the goods or services being produced Overhead
• (^) All other product costs that are not direct materials and direct labor

Cost of salaries, wages, and fringe benefits for personnel who work directly on manufactured products. Direct Labor Example: Wages paid to an airplane assembly worker. Example: Wages paid to an airplane assembly worker.

Manufacturing Overhead All other manufacturing costs Materials used to support the production process. Examples: lubricants and cleaning supplies used in an airplane assembly plant. Indirect Labor Indirect Material Other Costs

Manufacturing Overhead All other manufacturing costs Examples: depreciation on plant and equipment, property taxes, insurance, utilities, overtime premium, and unavoidable idle time. Indirect Labor Indirect Material Other Costs

Product Cost Recap: An Automobile Example

How to calculate product cost in total and per unit. Calculation: Direct materials Direct labor Overhead Total product cost $ 38, 24, 57, $120, Per-unit product cost = $120,000 / 24,000 = $ Therefore, one pair of jeans cost $5 to produce.

Cost Classifications on Financial Statements – Balance Sheet Merchandiser

Current Assets

 Cash  Receivables  Prepaid Expenses  Merchandise Inventory Manufacturer Current Assets  Cash  Receivables  Prepaid Expenses  Inventories Raw Materials Work in Process Finished Goods

Manufacturer Current Assets  Cash  Receivables  Prepaid Expenses  Inventories Raw Materials Work in Process Finished Goods Cost Classifications on Financial Statements – Balance Sheet Partially complete products – material to which some labor and/or overhead has been added. Merchandiser Current Assets  Cash  Receivables  Prepaid Expenses  Merchandise Inventory

Manufacturer Current Assets  Cash  Receivables  Prepaid Expenses  Inventories Raw Materials Work in Process Finished Goods Cost Classifications on Financial Statements – Balance Sheet Merchandiser Current Assets  (^) Cash  (^) Receivables  Prepaid Expenses  (^) Merchandise Inventory Completed products awaiting sale.

Manufacturing Cost Flows Selling and Administrative Selling and Administrative Period Expenses Manufacturing Overhead Raw Material Work in Process Finished Goods Cost of Goods Sold Material Purchases Direct Labor Balance Sheet Costs Inventories Income Statement Expenses Material, labor and manufacturing overhead costs remain in inventory until the product is sold, so they are sometimes called inventoriable costs.

Manufacturing Cost Flows Selling and Administrative Selling and Administrative Period Expenses Period expenses are not associated with manufacturing the product and are expensed in the period incurred. Manufacturing Overhead Raw Material Work in Process Finished Goods Cost of Goods Sold Material Purchases Direct Labor Balance Sheet Costs Inventories Income Statement Expenses Any selling or administrative expense is a period expense