ACCT226

managerial accounting vs financial

within vs external

direct costs

easily traced to product

indirect

not easily tracable to product/other cost object ex: overhead manufacturing

common costs

Indirect costs incurred to support a
number of cost objects

manufacturing costs

direct materials, labor, and manufacturing overhead

manufacturing overhead

• Depreciation of manufacturing equipment
• Utility costs for the factory
• Property taxes for the factory
• Insurance premiums incurred to operate a manufacturing facility

Prime cost:

direct material + direct labor

conversion cost

direct labor + manufacturing overhead

nonmanufacturing costs

selling & administrative costs

selling

Costs necessary to secure the
order and deliver the product

administrative

Executive, corporate, organizational,
and clerical costs

Product costs **

• include all the costs that are involved in acquiring

or making a product (COGS);

• “attach” to a unit of product as it is purchased or

manufactured; and

• stay attached to each unit of product as long as it

remains in inventory awaiting sale.

include direct materials, direct labor, and

manufacturing overhead…Tracked as Inventory until

sold….then COGS (expensed when sold

period costs

all selling and administrative costs

classification of cost behavior

Variable costs
• Fixed costs
• Mixed costs

variable costs

cost per unit is constant, cost that varies, in total, in direct proportion to changes in the level of

activity.

fixed costs

cost per unit varies, Remains constant, in total, regardless of changes in the level of the

activity…within the relevant range

types of fixed costs and what they are

committed: long term

discretionary: May be altered in the short-term by current

managerial decisions

total mixed cost equation & what each represent

Y= A+Bx

y= total mixed cost

A= total fixed cost

B = variable cost per unit of acitvity

x= activity level

cost classification for making decisions

differential costs

• sunk costs (costs have already been incurred and

cannot be changed now or in the future, ignored in decision making)

• opportunity costs.

differential costs

difference

in cost between any two alternatives, Differential cost and differential revenue are always

relevant to decisions., can be fixed or variable