CH.1 ACC 2203

What factors include product costs?

Any costs that have both a direct and indirect of producing that product or manufacturing costs.

Examples of product costs

Direct materials — materials you can trace to the product (the wood in a table)

Direct labor — wages for people physically making it

Manufacturing overhead — indirect manufacturing costs: factory rent, factory utilities, equipment depreciation, supervisor salaries, indirect materials like glue or screws

For financial accounting purposes, what is the total product cost incurred to make 10,000 units?

How to find it: add those four per-unit costs, then multiply by the number of units. Product costs include direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead

Per unit: 6.00 + 3.50 + 1.50 + 4.00 = $15.00

Total: $15.00 × 10,000 units = $150,000

What are period costs?

They are anything that aren't tied into making the product in the first place

Examples of Period Costs

• CEO Bonuses

• Sales commissions — feel product-related, but happen at the sale, after manufacturing → period cost

• Shipping to customers — the product's literally moving, but it's a selling cost → period cost

• Depreciation on the delivery truck vs. depreciation on factory equipment — same word "depreciation," but the factory one is a product cost and the truck one is a period cost

Direct cost

A cost easily traced to a specified cost object.

Indirect cost

A cost that cannot be easily traced to a specified cost object.

Raw materials

Any materials going into the final product.

Direct materials

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

Manufacturing overhead

All manufacturing costs except direct materials and direct labor.

Indirect materials

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily traced to it.

Indirect labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be easily traced to particular products.

What items are included in Nonmanufacturing Costs?

Selling Costs and Adminiastrative Costs

Variable cost

They are costs that change with how much you make or sell. A variable cost is constant per unit.

To find the variable cost per unit produced and sold, you just need to add up all of your variable costs to get your answer

The variable items (add them all):

• Direct materials — $6.00

• Direct labor — $3.50

• Variable manufacturing overhead — $1.50

• Sales commissions — $1.00

• Variable administrative expense — $0.50

Total = $12.50 per unit

Activity base

It's the thing that makes a variable cost go up or down.

Fixed cost

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per-unit basis, it varies inversely with the level of activity.

How to find the average fixed manufacturing cost per unit?

You would multiply the given number of units that was produced and sold times the relevant accounting over the units produced in the if problem.

How to find average variable cost?

To find average variable cost, you would just have to sum up the relevant accounting items given in the table

How to find the fixed manufacturing cost incurred?

You multiply the amount of units produced and sold times fixed manufacturing overhead