Managerial Accounting and Cost Concepts Chapter 02 Power

2 -2 Classifications of Manufacturing Costs Direct Materials Direct Labor The Product Manufacturing Overhead

2 -3 Direct Materials Raw materials that become an integral part of the product

2 -4 Direct Labor Those labor costs that can be easily traced to individual

2 -5 Manufacturing Overhead Manufacturing costs that cannot be easily traced directly to specific

2 -6 Nonmanufacturing Costs Administrative Costs All executive, organizational, and clerical costs.

2 -7 Product Costs Versus Period Costs Product costs include direct materials, direct labor,

2 -8 Classifications of Costs Manufacturing costs are often classified as follows: Direct Material

2 -9 Variable Cost Total Texting Bill Your total texting bill is based on

2 -10 Variable Cost Per Unit Cost Per Text Sent The cost per text

2 -11 The Activity Base (Cost Driver) Machine hours Units produced A measure of

2 -12 Fixed Cost Monthly Cell Phone Contract Fee Your monthly contract fee for

2 -13 Fixed Cost Per Unit Monthly Cell Phone Contract Fee Within the monthly

2 -14 Types of Fixed Costs Committed Discretionary Long-term, cannot be significantly reduced in

2 -15 The Linearity Assumption and the Relevant Range Total Cost Economist’s Curvilinear Cost

2 -16 Rent Cost in Thousands of Dollars Fixed Costs and the Relevant Range

2 -17 Mixed Costs Total Utility Cost Y l a t o ed x

Slides: 18

Download presentation

Managerial Accounting and Cost Concepts Chapter 02 Power. Point Authors: Susan Coomer Galbreath, Ph. D. , CPA Charles W. Caldwell, D. B. A. , CMA Jon A. Booker, Ph. D. , CPA, CIA Cynthia J. Rooney, Ph. D. , CPA

2 -2 Classifications of Manufacturing Costs Direct Materials Direct Labor The Product Manufacturing Overhead

2 -3 Direct Materials Raw 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

2 -4 Direct Labor Those labor costs that can be easily traced to individual units of product. Example: Wages paid to automobile assembly workers

2 -5 Manufacturing Overhead Manufacturing costs that cannot be easily traced directly to specific units produced. Examples: Indirect materials and indirect labor

2 -6 Nonmanufacturing Costs Administrative Costs All executive, organizational, and clerical costs.

2 -7 Product Costs Versus Period Costs Product costs include direct materials, direct labor, and manufacturing overhead. Inventory Cost of Good Sold Period costs include all selling costs and administrative costs. Expense Sale Balance Sheet Income Statement

2 -8 Classifications of Costs Manufacturing costs are often classified as follows: Direct Material Direct Labor Prime Cost Manufacturing Overhead Conversion Cost

2 -9 Variable Cost Total Texting Bill Your total texting bill is based on how many texts you send. Number of Texts Sent

2 -10 Variable Cost Per Unit Cost Per Text Sent The cost per text sent is constant at 5 cents per text message. Number of Texts Sent

2 -11 The Activity Base (Cost Driver) Machine hours Units produced A measure of what causes the incurrence of a variable cost Miles driven Labor hours

2 -12 Fixed Cost Monthly Cell Phone Contract Fee Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract. The monthly contract fee does not change based on the number of calls you make. Number of Minutes Used Within Monthly Plan

2 -13 Fixed Cost Per Unit Monthly Cell Phone Contract Fee Within the monthly contract allotment, the average fixed cost per cell phone call made decreases as more calls are made. Number of Minutes Used Within Monthly Plan

2 -14 Types of Fixed Costs Committed Discretionary Long-term, cannot be significantly reduced in the short term. May be altered in the short-term by current managerial decisions Examples Depreciation on Buildings and Equipment and Real Estate Taxes Advertising and Research and Development

2 -15 The Linearity Assumption and the Relevant Range Total Cost Economist’s Curvilinear Cost Function Relevant Range A straight line closely approximates a curvilinear variable cost line within the relevant range. Accountant’s Straight-Line Approximation (constant unit variable cost) Activity

2 -16 Rent Cost in Thousands of Dollars Fixed Costs and the Relevant Range 90 Relevant 60 Range 30 0 0 The relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is flat. 1, 000 2, 000 3, 000 Rented Area (Square Feet)

2 -17 Mixed Costs Total Utility Cost Y l a t o ed x i m t s o c T Variable Cost per KW Activity (Kilowatt Hours) X Fixed Monthly Utility Charge

2 -18 End of Chapter 02