Managerial Accounting Chapter 14: Concepts and Cost Classifications

Vocabulary flashcards covering key managerial accounting concepts, cost classifications, inventories, and the flow of costs from the lecture notes.

Direct materials

Costs for materials that can be traced to the product cost‑effectively (e.g., bike tires, frames).

Direct labor

Wages and salaries for workers who can be traced to the product cost‑effectively (e.g., bike assembly wages).

Factory overhead

All manufacturing costs not direct materials or direct labor; includes indirect labor, indirect materials, and other indirect costs (e.g., utilities, depreciation).

Prime costs

Direct materials plus direct labor.

Conversion costs

Direct labor plus factory overhead.

Product costs

Costs tied to manufacturing the product (DM, DL, FOH).

Period costs

Costs not tied to production; selling and general/administrative expenses.

Total manufacturing costs

Direct materials used plus direct labor plus factory overhead used.

Schedule of Cost of Goods Manufactured

A schedule that summarizes direct materials used, direct labor, and factory overhead, plus beginning and ending WIP to compute COGM.

Cost of Goods Manufactured (COGM)

Total cost of goods completed and transferred from WIP to Finished Goods; Beginning WIP + Total Manufacturing Costs - Ending WIP.

Beginning Work in Process

WIP inventory at the start of the period.

Ending Work in Process

WIP inventory at the end of the period; used to compute COGM.

Raw Materials Inventory

Inventory of raw materials on hand; materials waiting to be processed.

Work in Process Inventory

Partially completed goods in production.

Finished Goods Inventory

Completed goods ready for sale.

Cost of Goods Sold (COGS) – manufacturers formula

Beginning finished goods + Cost of Goods Manufactured - Ending finished goods = COGS.

Flow of manufacturing costs

Materials activity (raw materials), Production activity (work in process), Sales activity (finished goods) and related balances on financial statements.

Lean manufacturing

Goal: eliminate waste while satisfying the customer; continuous improvement.

Just-In-Time (JIT)

Receive materials and schedule production so materials arrive just in time for production; reduces inventory.

Value chain

Series of value-adding activities; lean principles increase efficiency and profits.

Triple bottom line

Profit, people, and planet (financial, social, environmental) considerations.

ESG

Environmental, Social, and Governance metrics; framework for responsible corporate behavior.

Data analytics (four types)

Descriptive, Diagnostic, Predictive, Prescriptive analysis to identify relations and trends.

Data visualization

Graphical presentation of data (e.g., Tableau dashboards) to help decision making.

Raw materials inventory turnover

Raw materials used ÷ Average raw materials inventory; measures how quickly materials are used/replaced.

Days’ sales in raw materials inventory

Ending raw materials inventory ÷ Raw materials used × 365 (approximately 38.4 days in the example).

Internal controls

Procedures to ensure reliable accounting, protect assets, uphold policies, and promote efficient operations.

Fraud cost (ACFE estimate)

Average U.S. business loses about 5% of annual revenues to fraud.

Ethics in managerial accounting

Competence, confidentiality, integrity, and credible communication of information.

Direct costs

Costs that can be cost‑effectively traced to a cost object.

Indirect costs

Costs that cannot be cost‑effectively traced to a cost object.

Manufacturing statement (COGM schedule)

Schedule showing DM used, DL, FOH, total manufacturing costs, WIP, and COGM used to compute cost of goods manufactured.

Beginning/Ending Finished Goods (COGS)**

COGS = Beginning Finished Goods + COGM − Ending Finished Goods (for manufacturers).