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1、Manufacturing Cost Concepts,Financial Accounting Cost is a measure of resources used or given up to achieve a stated purpose.,Managerial Accounting Product costs are the costs a company assigns to units produced.,The Product,DirectMaterials,DirectLabor,ManufacturingOverhead,Manufacturing Costs,Direc
2、t Materials,Those materials that become an integral part of the product and that can be conveniently traced directly to it.,Example: A radio installed in an automobile,Direct Labor,Those labor costs that can be easily traced to individual units of product.,Example: Wages paid to automobile assembly
3、workers,Manufacturing costs that cannot be traced directly to specific units produced.,Manufacturing Overhead,Examples: Indirect labor and indirect materials,Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors and security guards.,Materia
4、ls used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant.,Classifications of Costs,DirectMaterials,DirectLabor,ManufacturingOverhead,PrimeCost,ConversionCost,Manufacturing costs are oftencombined as follows:,Nonmanufacturing Costs,Ma
5、rketing and selling costs . . . Costs necessary to get the order and deliver the product. Administrative costs . . . All executive, organizational, and clerical costs.,Product Costs Versus Period Costs,Product costs include direct materials, direct labor, and manufacturing overhead.,Period costs are
6、 not included in product costs. They are expensed on the income statement.,Inventory,Cost of Good Sold,BalanceSheet,IncomeStatement,Sale,Expense,IncomeStatement,Cost Classifications for Predicting Cost Behavior,How a cost will react to changes in the level of business activity. Total variable costs
7、change when activity changes. Total fixed costs remain unchanged when activity changes.,Total Variable Cost,Your total long distance telephone bill is based on how many minutes you talk.,Minutes Talked,Total Long DistanceTelephone Bill,Variable Cost Per Unit,Minutes Talked,Per MinuteTelephone Charge
8、,The cost per long distance minute talked is constant. For example, 10 cents per minute.,Total Fixed Cost,Your monthly basic telephone bill probably does not change when you make more local calls.,Number of Local Calls,Monthly Basic Telephone Bill,Fixed Cost Per Unit,Number of Local Calls,Monthly Ba
9、sic Telephone Bill per Local Call,The average cost per local call decreases as more local calls are made.,Cost Classifications for Predicting Cost Behavior,Cost Behavior,Fixed costs are usually characterized by: a.Unit costs that remain constant. b.Total costs that increase as activity decreases. c.
10、Total costs that increase as activity increases. d.Total costs that remain constant.,Fixed costs are usually characterized by: a.Unit costs that remain constant. b.Total costs that increase as activity decreases. c.Total costs that increase as activity increases. d.Total costs that remain constant.,
11、Cost Behavior,Cost Behavior,Variable costs are usually characterized by: a.Unit costs that decrease as activity increases. b.Total costs that increase as activity decreases. c.Total costs that increase as activity increases. d.Total costs that remain constant.,Variable costs are usually characterize
12、d by: a. Unit costs that decrease as activity increases. b.Total costs that increase as activity decreases. c.Total costs that increase as activity increases. d.Total costs that remain constant.,Cost Behavior,The Linearity Assumption and the Relevant Range,Activity,Total Cost,EconomistsCurvilinear C
13、ost Function,Activity,Total Cost,EconomistsCurvilinear Cost Function,Accountants Straight-Line Approximation (constant unit variable cost),The Linearity Assumption and the Relevant Range,Activity,Total Cost,RelevantRange,The Linearity Assumption and the Relevant Range,Accountants Straight-Line Appro
14、ximation (constant unit variable cost),EconomistsCurvilinear Cost Function,A straight line closely approximates a curvilinear variable cost line within the relevant range.,Types of Fixed Costs,Fixed Costs,Discretionary May be altered in the short-term by current managerial decisions,Committed Long-t
15、erm, cannot be reduced in the short term.,Examples Depreciation on Buildings and Equipment,Examples Advertising and Research and Development,Trend Toward Fixed Costs,Increased automation. Increase in salaried knowledge workers who are difficult to train and replace.,Implications Managers are more “l
16、ocked-in” with fewer decision alternatives. Planning becomes more crucial because fixed costs are difficult to change with current operating decisions.,Example: Office space is available at a rental rate of $30,000 per year in increments of 1,000 square feet. As the business grows more space is rented, increasing the total cost.,Fixed Costs and Relevant Range,Continue,Rent Cost in Thousands of Dollars,0 1,000 2,000 3,000 Rented Area (Square Feet),0,30,60,Fixed Costs and Relevant
