CH01 Managerial Accounting

A 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.

True or false: Period costs flow from Finished Goods to Cost of Goods Sold.

False

A journal entry that debits Manufacturing overhead and credits Accounts payable could be made to record

factory utilities expense, rent expense on factory equipment

Work In Process consists of?

Actual direct materials cost, actual direct labor cost, applied manufacturing overhead

Raw Materials

Any materials that go in to the final product. Finals products can become raw materials for another product. EX; cables/circuit boards created from a different company that gets sent to a another company so they can use those finished products as raw materials to create a different product like an airplane.

cost structure

Costs are often categorized as variable, fixed, or mixed

Explain the difference between indirect costs and direct costs

For example A factory manager's salary is an indirect cost of manufacturing Chicken noodle soup. It is a direct cost of manufacturing department. This can vary based on context or perspective.

Product Costs cont.

For manufacturing companies, product costs include direct materials, direct labor, and manufacturing overhead. A manufacturers product costs flow through three inventory accounts on the balance sheet --> Raw materials, Work in Process, and Finished Goods prior to be recorded in the cost of goods sold on the income statement.

Common Cost

IS a cost hat is incurred to support a number of cost objects cannot be traced to them individually. A Common cost is a type of indirect cost.

Factory Burden

Manufacturing Overhead

The journal entry to record expired prepaid insurance on factory equipment is debit ______.

Manufacturing Overhead and credit Prepaid Insurance

Factory Overhead

Manufacturing overhead

The journal entry to record accrued property taxes for a factory building debits ______.

Manufacturing overhead and credits property taxes payable

Indirect Manufacturing costs

Name for Manufacturing Overhead

Indirect Materials

Raw materials like solder used to make electrical connections or glue used to assemble a chair etc. (considered manufacturing overhead)

Conversion Cost

Sum of direct labor and manufacturing overhead. Used to describe direct labor and manufacturing overhead because these costs and incurred to convert direct materials into finished products.

Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials$7.00 Direct labor$4.00 Variable manufacturing overhead$1.50 Fixed manufacturing overhead$5.00 Fixed selling expense$3.50 Fixed administrative expense$2.50 Sales commissions$1.00 Variable administrative expense$0.50

Total amount of product costs$350,000 (17.5x20000) or (12.5x20000 + 5x20000) Total amount of period costs incurred$150,000 (7.5x20000) Total amount of product costs$375,000 (12.5x22000 + 5x20000**Fixed overhead**) Total amount of period costs$147,000 (6x20000 + 1.5x18000**variable**)

Variable Costs

Varies IN TOTAL, in direct proportions to changes in the level of activity. It stays the SAME in a BY UNIT basis. Common examples are COGS, direct materials, direct labor, variable elements of a manufacturing overhead, such as indirect materials, supplies, and power, and variable elements of selling and admin expenses, such as commissions and shipping costs.

A company incurred $10,000 in direct labor costs and $8,000 in indirect labor costs. The journal entry to record this transaction debits ______.

Work in process $10,000 and Manufacturing overhead $8,000 and credits Salaries and wages payable $18,000

A company requisitioned $40,000 in direct materials and $30,000 in indirect materials from the storeroom to be used in production. The journal entry to record this transaction debits ______.

Work in process $40,000, debit Manufacturing overhead $30,000 and credit Raw materials $70,000

Indirect Cost

a cost that cannot be easily and conveniently traced to a specified cost object

A Cost Object

anything for which cost data is desired

Period Costs

are all the costs that are not product costs. All selling and admin expenses are treated as period costs. EXAMPLE, sales commissions, advertising, executive salaries, PR, and the rental costs of admin offices are all period costs. Period costs are not included as part of the cost of either purchased or manufacturing goods; instead, period costs are expensed on the income statement in the period in which they're incurred.

Cost of goods sold calculation

beginning inventory + purchases - ending inventory

Direct Labor

consists of labor costs that can be easily traced to; individual units of product. Direct labor is sometimes called touch labor. Because they typically touch the product. EXAMPLE. Line workers on a manufacturing line.

work in process

consists of units of production that are only partially complete and will require further work before they are ready for sale to customers

Direct Costs

costs that can be easily and accurately traced to a cost object. Ex Company makes specific product for a specific customer

When jobs are sold their costs are transferred out of ______.

finished goods

Administrative costs

include all costs associated with the general management of an organization rather than with manufacturing or selling. Example executive compensation, general accounting, legal counsel, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole. ADMIN COSTS can be indirect costs or direct costs

Labor costs charged to Manufacturing Overhead represent ______ labor costs.

indirect

Activity base

is a measure of whatever causes the incurrence of a variable cost. Called a cost driver, common activity bases are direct labor-hours, machine-hours, units produced, and units sold. Other examples are, miles driven by sales people, pounds of laundry cleaned by hotels, and number of calls handles by a support team.

A journal entry that debits Work in process and credits Manufacturing overhead is recording the ______.

issuance of materials

The journal entry to record the purchase of materials debits ______.

raw materials

A journal entry that debits Manufacturing overhead and credits Property taxes payable records the

recognition of accrued property taxes

Indirect Labor

refers to employees such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a facility. However these people cannot be easily traced in the making process of the product. (Considered Manufacturing overhead)

Cost behavior

refers to how a cost reacts to changes in the level of activity.

Direct Materials

refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. EXAMPLE. Airplane seats purchased from a contracting company to install in the aircraft. **They can be traced**

nonmanufacturing costs

selling costs and administrative costs

Prime Cost

sum of direct material cost and direct labor cost (direct material cost + direct labor cost= Prime cost)

The value of work in process is equal to ______.

the cost of all unfinished jobs

Manufacturing Overhead

the third manufacturing cost category, includes all manufacturing costs except direct materials and direct labor. (Indirect costs that cannot be readily traced to specific products. Includes some indirect materials and indirect labor. ) (Examples cont. deprecation of manufacturing equipment, property taxes, utilities, insurance related to the manufacturing process ex: the factory building/property. )

finished goods

units of product that have been completed but not yet sold to customers

Selling Costs

include all costs that are incurred to secure customer orders and get the finished product to the customer. (Sometimes called order getting and order filling costs. Examples include advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses *storage of product*)

Product costs

include all costs involved in acquiring or making a product. They're attached to a s unit of product as it is purchased or manufactured and they stat attached to each unit of product as long as it remains in inventory awaiting sale. When the products are sold their costs are released from them and annotated as cost of goods sold (COGS). But because product costs are initially assigned to inventories they're also known as "inventoriable" costs.