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1、Costs Terms, Concepts and Classifications,Chapter Two,Why costs? An important part of information system A strategy An example-Airline company,Different costs for different purposes -costs used in financial and managerial accounting Whole or segment? Cost composition,Learning Objective 1,Identify an
2、d give examples of each of the three basic manufacturing cost categories.,The Product,Manufacturing Costs,Direct Materials,Raw materials that become an integral part of the product and that can be conveniently and directly traced to it.,Example: A radio installed in an automobile,Direct Labor,Those
3、labor costs that can be easily traced to individual units of product.,Example: Wages paid to automobile assembly workers,Manufacturing costs that cannot be traced conveniently and directly to specific units produced.,Manufacturing Overhead,Indirect materials, indirect labor, and other manufacturing
4、overhead,Non-manufacturing Costs,Cost Classifications,Learning Objective 2,Distinguish between product costs and period costs and give examples of each.,Matching Principle-based on Accrual accounting,Costs incurred to generate a particular revenue should be recognized as expenses in the same period
5、that the revenue is recognized.,Economic events are recognized by matching revenues to expenses (the matching principle)at the time in which the transactionoccurs rather than when payment is made (or received).,Product Costs Versus Period Costs,Product costs include direct materials, direct labor, a
6、nd manufacturing overhead.,Period costs include all selling costs and administrative costs.,Quick Check ,Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarte
7、rs. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.,Quick Check ,Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corpo
8、rate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.,Classifications of Costs,DirectMaterial,DirectLabor,ManufacturingOverhead,Manufacturing costs are oftenclassified as follows:,Comparing Merchandising and Manufacturing Activities
9、,Merchandisers . . . Buy finished goods. Sell finished goods.,Manufacturers . . . Buy raw materials. Produce and sell finished goods.,Balance Sheet,Merchandiser Current assets Cash Receivables Prepaid Expenses Merchandise Inventory,Manufacturer Current Assets Cash Receivables Prepaid Expenses Invent
10、ories Raw Materials Work in Process Finished Goods,Merchandiser Current assets Cash Receivables Prepaid Expenses Merchandise Inventory,Manufacturer Current Assets Cash Receivables Prepaid Expenses Inventories Raw Materials Work in Process Finished Goods,Balance Sheet,Learning Objective 3,Prepare an
11、income statement including calculation of the cost of goods sold.,The Income Statement,Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.,Basic Equation for Inventory Accounts,Quick Check ,If your inventory balance at the beginning of the month was
12、$1,000, you bought $100 during the month, and sold $300 during the month, what would be the balance at the end of the month? A. $1,000. B. $ 800. C. $1,200. D. $ 200.,Quick Check ,If your inventory balance at the beginning of the month was $1,000, you bought $100 during the month, and sold $300 duri
13、ng the month, what would be the balance at the end of the month? A. $1,000. B. $ 800. C. $1,200. D. $ 200.,$1,000 + $100 = $1,100 $1,100 - $300 = $800,Learning Objective 4,Prepare a schedule of cost of goods manufactured.,Schedule of Cost of Goods Manufactured,Calculates the cost of raw material, di
14、rect labor and manufacturing overhead used in production.,Calculates the manufacturing costs associated with goods that were finished during the period.,As items are removed from raw materials inventory and placed into the production process, they arecalled direct materials.,Product Cost Flows,Produ
15、ct Cost Flows,Product Cost Flows,All manufacturing costs incurred during the period are added to the beginning balance of work in process.,Product Cost Flows,Costs associated with the goods that are completed during the period are transferred to finished goods inventory.,Product Cost Flows,Manufactu
16、ring Cost Flows,Balance Sheet Costs Inventories,Income StatementExpenses,Cost The $100 listed on the balance sheet as an inventory,Expense The $100 expensed until the finished goods are sold that are made of the raw material,Payout Pay $100 for Raw Material,Quick Check ,Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was
