Chapter 1

1. Chapter 1 An Introduction to Managerial Accounting and Cost Concepts

2. Managerial accountingprovides informationfor managers of anorganization whodirect and controlits operations. Financial accountingprovides informationto stockholders,creditors and otherswho are outsidethe organization. Managerial Accounting and Financial Accounting

3. Work of Management Planning Directing and Motivating Controlling

4. Begin Comparing ActualtoPlanned Performance (Controlling) Implementing the Plans(Directing and Motivating) DecisionMaking MeasuringPerformance (Controlling) Planning and Control Cycle Formulating Long-andShort-Term Plans (Planning)

5. Comparison of Financial and Managerial Accounting

6. DirectMaterials DirectLabor ManufacturingOverhead Manufacturing Costs The Product

7. Direct Materials Those materials that become an integral part of the product and that can be conveniently traced to it. Example:A radio installed in an automobile

8. Direct Labor Those labor costs that can be easily traced to individual units of product. Example:Wages paid to automobile assembly workers

9. Indirect Materials Indirect Labor Costs Related to the Manufacturing Facility Manufacturing Overhead Manufacturing costs that cannot be traced directly to specific units produced. Manufacturing Overhead

10. Indirect Materials Materials used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant. Indirect Labor Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors and security guards. Costs Related to the Manufacturing Facility Costs related to the manufacturing facility. Examples: property taxes, utilities, depreciation, insurance, repairs. Manufacturing Overhead

11. PrimeCost ConversionCost Classifications of Costs Manufacturing costs are oftenclassified as follows: DirectMaterial DirectLabor ManufacturingOverhead

12. Nonmanufacturing Costs Marketing and selling costs . . . • Costs necessary to get the order and deliver the product. Administrative costs . . . • All executive, organizational, and clerical costs.

13. Quick Check  Which of the following costs would be considered manufacturing overhead at Boeing? (More than one answer may be correct.) A. Depreciation on factory forklift trucks. B. Sales commissions. C. The cost of a flight recorder in a Boeing 767. D. The wages of a production shift supervisor.

14. Quick Check  Which of the following costs would be considered manufacturing overhead at Boeing? (More than one answer may be correct.) A. Depreciation on factory forklift trucks. B. Sales commissions. C. The cost of a flight recorder in a Boeing 767. D. The wages of a production shift supervisor.

15. Product costs include direct materials, direct labor, and manufacturing overhead. Period costs are not included in product costs. They are expensed on the income statement. Inventory Expense Cost of Good Sold Sale BalanceSheet IncomeStatement IncomeStatement Product Costs versus Period Costs

16. 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 headquarters. C. Direct materials costs. D. Electrical costs to light the production facility.

17. 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 headquarters. C. Direct materials costs. D. Electrical costs to light the production facility.

18. Balance Sheet • Manufacturer • Current Assets • Cash • Receivables • Prepaid Expenses • Inventories • Raw Materials • Work in Process • Finished Goods Merchandiser Current assets • Cash • Receivables • Prepaid expenses • Merchandise inventory

19. Materials waiting to be processed. Partially complete products – some material, labor, or overhead has been added. Completed products awaiting sale. Balance Sheet • Manufacturer • Current Assets • Cash • Receivables • Prepaid Expenses • Inventories • Raw Materials • Work in Process • Finished Goods Merchandiser Current assets • Cash • Receivables • Prepaid expenses • Merchandise inventory

20. Manufacturing Companies: Classifications of Inventory Examples of inventory classifications for production of a baseball. Raw hide, yarn, small rubber ball Round ball of yarn and 2 pieces of raw hide cut into appropriate shape Baseball Raw Materials Work-in-Process Finished Goods

21. The Income Statement Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.

22. Material Purchases Raw Materials Direct Labor Work in Process ManufacturingOverhead Cost of GoodsSold FinishedGoods Period Costs Selling andAdministrative Selling andAdministrative Manufacturing Cost Flows Balance Sheet Costs Inventories Income Statement Expenses

23. Quick Check  Which of the following transactions would immediately result in an expense? (There may be more than one correct answer.) A. Work in process is completed. B. Finished goods are sold. C. Raw materials are placed into production. D. Administrative salaries are accrued and paid.

24. Quick Check  Which of the following transactions would immediately result in an expense? (There may be more than one correct answer.) A. Work in process is completed. B. Finished goods are sold. C. Raw materials are placed into production. D. Administrative salaries are accrued and paid.

25. Beginning finished goods inventory Cost of goods manufactured Ending finished goods inventory Cost of goods sold + + = Cost of goods sold Beginning finished goods inventory Cost of goods manufactured Ending finished goods inventory = – + Inventory Flows or

26. Schedule of Cost of Goods Manufactured Beginning inventory is the inventory carried over from the prior period.

27. Schedule of Cost of Goods Manufactured As items are removed from raw materials inventory and placed into the production process, they arecalled direct materials.

28. 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 still present. What is the cost of direct material used? A. $276,000 B. $272,000 C. $280,000 D. $ 2,000

29. 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 still present. What is the cost of direct material used? A. $276,000 B. $272,000 C. $280,000 D. $ 2,000

30. Schedule of Cost of Goods Manufactured

31. Schedule of Cost of Goods Manufactured Conversion costs are costs incurred to convert the direct material into a finished product.

32. Quick Check  Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month? A. $555,000 B. $835,000 C. $655,000 D. Cannot be determined.

33. Quick Check  Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month? A. $555,000 B. $835,000 C. $655,000 D. Cannot be determined.

34. Schedule of Cost of Goods Manufactured All manufacturing costs incurred during the period are added to the beginning balance of work in process.

35. Schedule of Cost of Goods Manufactured Costs associated with the goods that are completed during the period are transferred to finished goods inventory.

36. Quick Check  Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? A. $1,160,000 B. $ 910,000 C. $ 760,000 D. Cannot be determined.

37. Quick Check  Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? A. $1,160,000 B. $ 910,000 C. $ 760,000 D. Cannot be determined.

38. Schedule of Cost of Goods Manufactured

39. Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month? A. $ 20,000. B. $740,000. C. $780,000. D. $760,000.

40. Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month? A. $ 20,000. B. $740,000. C. $780,000. D. $760,000. $130,000 + $760,000 = $890,000 $890,000 - $150,000 = $740,000

41. Cost Classifications for Predicting Cost Behavior How a cost will react to changes in the level of business activity. • Total variable costschange when activity changes. • Total fixed costsremain unchanged when activity changes.

42. Total Long DistanceTelephone Bill Minutes Talked Total Variable Cost Your total long distance telephone bill is based on how many minutes you talk.

43. Per MinuteTelephone Charge Minutes Talked Variable Cost Per Unit The cost per long distance minute talked is constant. For example, 10 cents per minute.

44. Monthly Basic Telephone Bill Number of Local Calls Total Fixed Cost Your monthly basic telephone bill probably does not change when you make more local calls.

45. Monthly Basic Telephone Bill per Local Call Number of Local Calls Fixed Cost Per Unit The average cost per local call decreases as more local calls are made.

46. Cost Classifications for Predicting Cost Behavior

47. Quick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

48. Quick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

49. Quick Check  Which of the following costs would be variable with respect to the number of people who buy a ticket for a show at a movie theater? (There may be more than one correct answer.) A. The cost of renting the film. B. Royalties on ticket sales. C. Wage and salary costs of theater employees. D. The utilities cost for the theater.

50. Quick Check  Which of the following costs would be variable with respect to the number of people who buy a ticket for a show at a movie theater? (There may be more than one correct answer.) A. The cost of renting the film. B. Royalties on ticket sales. C. Wage and salary costs of theater employees. D. The utilities cost for the theater.