Managerial Accounting (Ch. 1.2)

What are service companies? (accounting firms)

sell time, skill, knowledge

What are mercandising companies? (ex. Macy’s,Amazon)

resell products bought from suppliers

What are manufacturing companies? (ex.Apple)

use labor, equipment, supplies, faiclities to convert raw materials into finished goods

What are three 3 kinds of inventory manufacturing companies have?

Raw materials, work in process, finished goods

What is cost?

sacrifice of resources

What is expenditure?

outlay of cash

What is expense?

accounting principle (matching principle: match expenses to revenue)

What are product costs?

costs of purchasing or making a product

What is a period cost?

non-manufacturing costs

What are examples of product costs?

Direct materials, direct labor, manufacturing overhead

What are examples of period costs?

selling and administrative expenses, taxes, interest

Product costs are capitlizated on

Balance sheet until units are sold

Product costs are recognized on

Income sheet when units are sold

Where is period cost for I/S and B/S?

Income statement current period, not on balance sheet unless prepaid

What is the total product cost formula?

Direct materials + direct labor + manufacturing overhead

What is the per-unit product cost formula?

Total product cost / Number of units produced

What is a cost object?

The “what” a business is trying to cost

What is manufacturing overhead?

Indirect product costs like indirect materials, indirect labor, factory costs (rent, utilities, insurance)

What is prime cost?

Direct materials + Labor

What is conversion cost?

Direct labor + manufacturing overhea

Controlling what brings more savings than the other?

controlling period costs brings more cost savings than controlling product costs

Which costs are carried into inventory? Not?

Product costs are, Period costs are not

When are period costs expensed?

The period they are incurred

What are period costs recorded as?

Long term assets and allocated to expense through depreciation