Managerial Accounting chapter 2
Cost of Goods Sold Calculation— Manufacturer
+ Beginning finished goods inventory + Cost of goods manufactured = Cost of goods available for sale - Ending finished goods inventory = Cost of goods sold
Cost of goods sold Calculation - Merchandiser
+ Beginning inventory + Purchases + Import duties or tariffs +Freight-in = Cost of goods available for sale -- Ending inventory = Cost of goods sold
Direct Materials Used Calculation - Manufacturer
+ Beginning raw materials inventory + purchases of raw materials + freight in = Materials available for use -- Ending raw materials inventory = Direct materials used
Inventoriable Product Costs - Merchandiser
+ Purchase price from suppliers + Cost to get ready for sale + Freight-In + Import duties or tariffs
Income Statement— Manufacturer
+ Sales - Cost of goods sold = Gross profit - Operating expenses = Operating income
Income statement - Merchandiser
+ Sales -- Cost of goods sold = Gross profit -- Operating expenses = Operating income
Cost of goods Manufactured Calculation - Manufacturer
+ beginning work in process inventory + direct materials used + direct labor + manufacturing overhead = Total manufacturing costs to account for -- ending work in process inventory = cost of goods manufactured
What is Value Chain?
Activities that add value to products and services and cost money.
Examples of Service companies
Advertising agencies, Banks, Law firms, Insurance companies.
Period Costs
Always expensed in the period they are incurred in and never become part of an inventory account.
Cost Object
Anything for which managers want a separate measurement of cost.
Sunk cost
Are costs that have already been incurred.
Direct Materials
Are the Primary materials that become a physical part of the finished product.
Irrelevant
Costs that do not differ between alternatives.
What other costs do Merchandisers also incur?
Costs to operate retail stores, websites, advertise, research new products and new store locations, and provide customer service.
Customer Complaint Department.
Customer Service
Costs of a customer support center website.
Customer service
Prime costs
DM+DL
Inventoriable product costs formula
DM+DL+MOH=IPC
Distribution
Delivery of products or services to customers.
Rearranging store layout.
Design
Design
Detailed engineering of products and services and the processes for producing them.
Differential cost
Difference in cost between two alternatives.
Costs that differ between alternatives are called ____.
Differential costs
Relevant
Differential costs, which are costs that differ between alternatives.
Cost of Juniors clothing.
Direct
Cost of costume jewelry on the mannequins in the Juniors Department.
Direct
Juniors Department sales clerks.
Direct
Manager of Juniors Department.
Direct
What are the 3 types of manufacturing costs?
Direct Materials Direct Labor Manufacturing Overhead
Depreciation expense on delivery trucks.
Distribution
Transportation costs to deliver laser printers to retailers such as Best Buy.
Distribution
depreciation on delivery vehicles.
Distribution
The ____ per unit declines as a production facility produces more units.
Fixed costs
Within the relevant range, ____ do not change in total with changes in production volume.
Fixed costs
Total cost
Fixed costs + (variable cost per unit x number of units)
A product's ____ and ____, not the product's ____, should be used to forecast total costs at different production volumes.
Fixed costs, Variable costs, Average cost
When is average cost per unit not appropriate?
For predicting total costs at different levels of output.
Work in Process inventory
Goods that are partway through the manufacturing process but not yet complete.
Service companies
Have no inventory. Incur costs to provide services, develop new services, advertise and provide customer service. 70% of costs come from salaries and benefits.
Service companies
In business to sell intangible services such as healthcare, insurance, banking, and consulting rather than tangible products. Make up the largest sector of the U.S. economy.
Other Indirect Manufacturing Costs
Include plant related costs as depreciation on the plant and plant equipment, plant property taxes and insurance, plant repairs and maintenance, and plant utilities.
Raw materials inventory
Include steel, glass, tires, upholstery fabric, engines, and other automobile components. Also include physical materials used in the plant like machine lubricants, and janitorial supplies.
Manufacturing Overhead
Includes all manufacturing costs other than Direct Materials and Direct Labor.
What does indirect labor include?
Includes salaries, wages, benefits of forklift operators, plant security officers, plant janitors, and plant supervisors.
Cost of bags used to package customer purchases at the main registers for the store.
Indirect
Cost of hangers used to display the clothing in the store.
Indirect
Cost of radio advertising for the store.
Indirect
Cost of the security staff at the Medina store.
Indirect
Depreciation of the building.
Indirect
Electricity for the building.
Indirect
Juniors clothing buyers' salaries (these buyers buy for all of the Juniors Departments of Kohl's stores).
Indirect
The Medina Kohl's store manager's salary.
Indirect
What are the 3 components of Manufacturing Overhead? (MOH)
Indirect Materials, Indirect Labor, Other indirect manufacturing costs.
____ for a company such as Staples includes all of the costs necessary to purchase products and get them onto store shelves.
Inventory (merchandise)
Production
Is for manufacturer in the value chain.
Purchases
Is for merchandiser in the value chain.
Direct Labor
Is the cost of compensating employees who physically convert raw materials into the company's products.
Merchandiser's balance sheet includes what?
Just one inventory account "Inventory" or "Merchandise Inventory"
Conversion costs
MOH+DL These are the costs of converting raw materials into finished goods.
Controllable
Management can influence or change cost.
Uncontrollable
Management cannot change or influence cost in the short run. "Locked in"
____ report three types of inventory on the balance sheet.
Manufacturing companies
Honda motors converts ____ into finished products.
Raw materials inventory
What are the 3 types of inventory Manufacturers carry?
Raw materials, Work in process, Finished goods
b. Salary of engineers who are redesigning the printers on off switch.
Research and Design (R&D)
What are the 6 items that make up the value chain?
Research and Development, Design, Production or purchases, Marketing, Distribution, Customer Service
Research and Development
Researching and developing new or improved products or services and the processes for producing them.
What are Merchandising companies?
Resell tangible products they buy from suppliers. Have one inventory account. Ex. Wal-mart buys clothing, and toys then resells to customers at a higher price. Retailers and Wholesalers make up Merchandising companies.
Production or Purchases
Resources used to produce a product or service or to purchase finished merchandise intended for resale.
Direct & Indirect Labor cost include what?
Salaries and wages, Fringe Benefits, Payroll Taxes
What are Retailers?
Sell to customers like you and me. ex. wal-mart
Balance sheet differences
Service - None Merchandiser - Merchandise Inventory, Manufacturer - Raw materials, work in process, and finished goods inventory
An insurance company, a health care provider, and a bank are all examples of ____.
Service company
____ typically do not have an inventory account.
Service company
Income statement - Service Company
Service revenues -- Operating expenses = operating income
Most for profit organizations can be described as being in one or more of three categories: ____, _____, and _____.
Service, Manufacturing, Merchandising
What are the 3 types of companies?
Service, Merchandisers, Manufacturers
Fixed costs
Stay constant in total cost over a wide range of activity levels.
____ are costs that have already been incurred.
Sunk costs
Customer Service
Support provided for customers after sale.
Indirect Labor
The cost of all employees in the plant other than those employees directly converting the raw materials into the finished product.
What is cost of goods manufactured?
The cost of goods that were completed and moved to Finished Goods inventory.
Average cost
Total cost / number of units = Average cost
Manufacturing Companies
Use labor, plant and equipment to convert raw materials into new finished products.
Inventoriable Product Costs
Used for external reporting. Only includes the costs incurred during the "production or purchases" stage.
Total costs
Used internally only. Costs of all resources used throughout the value chain.
Gasoline is one of many ____ in the operation of a motor vehicle.
Variable cost
Examples of Merchandisers
Walmart, Best Buy, Amazon.com
____ buy products in bulk from producers, mark them up, and resell to retailers.
Wholesalers
____ is composed of goods partially through the manufacturing process (not finished yet).
Work in process
Direct cost
Cost that can be traced to the object. Ex. engine, metal frame
Indirect cost
Cost that relates to the cost object but cannot be traced to it. Have to allocate. Ex. nuts, bolts, glue
9. Television advertisements for Dairy Plain's products
Period
Examples of Indirect Costs
Plant utilities, property taxes, depreciation
Examples of Manufacturing companies
Procter & Gamble, General Mills, Dell computer
11. Wages and salaries paid to machine operators at dairy processing plant
Product DL
7. Plastic gallon containers in which milk is packaged
Product DM
10. Lubricants used in running bottling machines
Product MOH
3. Property tax on dairy processing plant
Product MOH
6. Depreciation on refrigerated trucks used to collect raw milk from local dairy famers
Product MOH
1. Cost of milk purchased from local dairy farmers
Product DM
c. Depreciation on Roseville, California, plant.
Production
Purchase of plastic used in printer casings.
Production (Direct materials)
Plant manager's salary.
Production and Purchases
Purchases of merchandise.
Production or Purchases
Freight- in.
Production or purchases
Marketing
Promotion and advertising of products or services.
Depreciation on research lab.
R & D
Payment to consultant for advice on location of new store.
R & D
Research on whether store should sell satellite radio service.
R & D
What makes up period costs?
R&D, Design, Marketing, Distribution, Customer Service, These are all recorded as Operating Expenses.
What are Wholesalers? (middlemen)
Buy products in bulk from manufacturers, mark up prices, and then sell those products to retailers.
Variable costs
Change in total cost in direct proportion to changes in volume.
Life cycle assignment
Company analyzes the environmental impact of a product, from cradle to grave, in an attempt to minimize environmental consequences.
Biomimicry
Company tries to mimic, or copy, the natural biological process.
Finished goods inventory
Completed goods that have not yet been sold.
In the long run, most costs are ____, meaning that management is able to influence or change the amount of the cost.
Controllable costs
Merchandising cost of Inventory include what?
Cost of goods plus all costs necessary to get merchandise in place and to sell, such as freight in and any import duties and tariffs.
Marginal cost
Cost of making one more unit.
A ____ is the cost of making one more unit.
Marginal cost
Newspaper advertisements.
Marketing
Salespeople's salaries.
Marketing
a. Cost of a prime time TV ad featuring the HP logo.
Marketing
Indirect Material
Materials used in the plant that are not easily traced to individual units.
Lands' End, Sears and L.L. Bean are all examples of ___.
Merchandising Companies
When is average cost per unit valid?
Only at ONE level of output.
2. Depreciation on Marketing Department's computers
Period
4. Gasoline used to operate refrigerated trucks delivering finished dairy products to grocery stores
Period
5. Company president's annual bonus
Period
8. Research and development on improving milk pasteurization process
Period
Service company
all costs are period costs.
