CH 1 ACC 220

the primary users of financial accounting vs managerial accounting

financial- external

managerial - internal

Managerial accounting may be less ___ than financial accounting

precise

the time orientation difference between financial accounting vs managerial accounting

financial - past

managerial - future

A cost object is

anything we want to measure cost data on

three examples of a cost object

product, service, a batch of produtcs

does a cost object apply to a service or manufacturing company?

both

We classify such costs that we assign to cost objects as either

indirect or direct

An individual cost is either direct or indirect, depending on the..

cost object

what are direct costs?

can be easily traced back to its cost object

"To be traced to a cost object such as a particular product, the cost must be…."

caused by the cost object

direct costs incudes what two things?

direct labor and direct materials

what are costs that cannot be easily traced back to its cost object?

indirect cost

are indirect costs necessary?

yes

are all indirect costs common costs?

no

what is the cost object in this example?

"The factory manager's salary is a direct cost of the manufacturing department."

the manufacturing department

what is the cost object in this example?

"The factory manager's salary is a indirect cost of manufacturing Campbell's soup."

the soup

In a manufacturing environment, all product costs fall into exactly what three categories?

1. direct labor

2. direct materials

3. manufacturing overhead

direct materials are defined as….

the raw materials that become apart of the final product

direct materials are easy to __.

measure

direct labor is defined as the hands-on…

human labor involved in creating a product or providing a service

direct labor is easy to __.

trace

manufacturing overhead is defined as the…

manufacturing costs that are NOT direct materials nor direct labor

manufacturing overhead includes both

indirect labor and indirect materials

manufacturing overhead can be seen as… (2)

1. everything else incurred inside the factory

2. associated with operating the factory

name some common examples of manufacturing overhead. think of some costs that might come with operating the factory (6):

1. rent

2. property taxes

3. depreciation

4. insurance

5. repairs

6. utilities

which of the three manufacturing cost categories is the most difficult to trace back to products?

manufacturing overhead

Managers sometimes refer to direct manufacturing costs as…

prime costs

Prime Cost =

direct materials + direct labor

Prime cost represents the…

main and easily traceable production costs

Conversion Cost is the cost of converting…

raw materials into finished products

Conversion Cost =

Direct Labor + Manufacturing Overhead

Non-Manufacturing Costs are divided into what two categories:

1. selling costs

2. administrative

Selling costs are all costs incurred to…. (2)

1. secure customer orders

2. deliver the product to the customers

give some examples of selling costs (5):

1. advertising

2. sales commissions

3. shipping

4. salespeople salaries

5. cost of finished goods warehouses

are selling costs indirect or direct?

can be either, it depends on the cost objecet

Administrative Costs are defined as the costs associated with the..

general management of the organization as a WHOLE

Administrative Costs are defined as the costs associated with the general management as a WHOLE rather than..

the manufacturing or selling

examples of administrative costs (4):

• public relations

• legal counsel

• accounting

• secretary

are administrative costs indirect or direct?

they can be either

The salary of the accounting manager for the East region is a __ cost of that region.

direct

The salary of the CFO who oversees all the regions of a company is an ___ cost with respect to such individual regions.

indirect

(T/F) Non-Manufacturing Costs can be called “selling, general, and administrative (SG&A) costs” or just “selling and administrative costs”. 

true

All SG&A expenses (Non-Manufacturing Costs) are treated as __ costs. 

perioid

The matching principle is based on the accrual concept that costs should be recognized as expenses in the same period that the..

revenue is recognized

product costs are all costs involved in

making or acquiring the product

In the case of manufactured goods, product costs =

direct labor + direct materials +manufacturing overhead

products are treated as ___ until the product is sold.

assets

products become an expense only when __.

sold

A product cost becomes an expense only when sold (COGS), and the amount is matched against

sales on the income statement

Because product costs are initially assigned to inventories, they are also known as ____ costs.

inventoriable

What are direct Materials waiting to be used in production?

raw materials

Products that are partially completed

works in processes

Works in processes include… (3)

• raw materials

• add direct labor

• add manufacturing overhead

What are completed products ready for sale?

finished goods

Period Costs are incurred where?

outside the factory

(T/F) Period costs are costs that are NOT product costs.

true

Period costs are often called

selling and administrative costs

Period Costs are expensed immediately in the period when…

we benefit/use it

Do period costs attach to products?

No

Period costs =

Selling costs + General and Administrative costs (SG&A)

__ __ flow through three inventory accounts on the balance sheet before being recognized as COGS in the income statement.

Product costs

The main idea of Traditional Inventory Systems?

the hold inventory as a buffer

the main idea behind Just-In-Time (JIT) Inventory systems?

the produce goods ONLY when needed

Advantages of Traditional Inventory Systems (1)

protection against supply-chain disruptions

Disadvantages of Traditional Inventory Systems (3):

1. expensive to hold

2. risk of obsolescence

3. storage, insurance, security costs

Advantages of Just-In-Time (JIT) Inventory systems: (5)

1. lower holding costs

2. reduces production time

3. better quality

4. customer satisfaction

5. motivation

Disadvantages of Just-In-Time (JIT) Inventory systems: (2)

1. more frequent shipment may result in higher costs

2. supply chain disruptions

What is Cost Behavior?

how a cost reacts to change in the level of activity

Fixed, variable, and mixed are the three types of…

cost behaviro

What is a company’s cost structure?

the relative proportion of each type of cost

Businesses must estimate costs at different levels of __.

activity

To predict costs, we must understand how costs __.

behave

Define a variable cost

varies in direct proportion to the level of activity

How does the total variable cost react to changes to activity?

changes

How does the the variable cost per unit react to changes to activity?

stays constant within a relevant range

If variable cost = $5 per unit, the per unit cost will ___ when activity increases…

stay $5

If variable cost = $5 per unit, the total cost will ___ when activity increases…

rise

Common examples of variable costs (5):

1. COGs for merchandising companies

2. direct material

3. direct labor

4. Variable elements of manufacturing overhead

5. Variable elements of selling and administrative expenses

What are some variable elements of selling and administrative expenses? (2)

• commissions

• shipping costs

The variable elements of manufacturing overhead is

indirect materials

The variable elements of manufacturing overhead is indirect materials. Name two examples:

1. power

2. supplies

(t/f) If cost per unit changes, it is not a variable cost.

true

Activity base is a measure of what?

whatever causes the incurrence of a variable cost

Activity base is sometimes called a?

cost driver

For a cost to be variable, it must vary with respect to ___.

something

For a cost to be variable, it must vary with respect to something — that something is an

activity base