Managerial Accounting (Note Taking)

CHAPTER I – MANAGERIAL ACCOUNTING AND COST CONCEPTS
Costs can be classified differently based on the needs of management. It includes

financial accounting and managerial accounting.
LO1-1: Assigning costs to cost objects
Cost object ▪ Anything for which ccost data are
desired
▪ Classified as direct or indirect
Direct cost Cost can be easily and conveniently
traced to a specified cost object
Ex:
Indirect cost Cost cannot be easily and conveniently
traced to a specified cost object
LO1-2: Classifications for Manufacturing companies

Manufacturing companies separate ▪ Manufacturing
their costs into 2 broad categories ▪ Non manufacturing
Direct materials Raw materials that become an integral
part of the finished product
Can be easily traced to the finished
products
Direct labor Consists of labor costs that can be easily
traced to individual units of product.
Manufacturing overhead Manufacturing costs except direct
materials and direct labor
LO 1-3: Cost classifications for preparing financial statements

Product costs ● include all costs involved in
acquring or making a product (raw
materials, direct labor,
manufacturing overhead)
● When units of product are sold,
their costs are released from
inventory as expenses (cost of
goods sold) and matched against
sales on the income statement.
Work in process Consist of units of product that are onlu
partially complete and will require futher
work before ready for sale
Finished goods Consists of completed units of product
that have not yet been sold to customers
Direct materials used in production -> transferred from raw materials to work in
process
Direct labor, manufacturing overheads are added to Work in process to finished goods
Period cost ● All costs that are not product

costs
● Selling and administrative
expenses
● Not included as part of purchased
or manufacturing goods
Period cost examples Sales commissions, advertising,
executive salaries, public relations,
rental costs of administrative offices
LO 1-2: Cost classifications for predicting cost behavior
Variable cost Varies in direct proportion to changes in

the level of activity
Ex:
(cost of goods sold, direct materials,
direct labor,
Variable elements of MOH – indirect
labor, indirect materials, power
Variable elements of selling and
administrative expenses – commissions
and shipping costs)
Fixed cost Cost remained unchanged regardless of
changes in the level of activity
Ex: depreciation, insurance, property
taxes, rent, supervisory salaries
Mixed cost Variable and fixed cost elements
LO 1-5: Cost classifications for decision making

Differential cost A future cost differs between any 2
alternatives
Differential revenue Any future revenue between any 2
alternatives
Opportunity cost The potential benefit that is given up
when one alternative is selected over
another
Ex: assume that you have a part-time job
while attending college
that pays $200 per week. If you spend
one week at the beach during spring
break without pay, then the $200 in lost
wages would be an opportunity cost of
taking the week off to be at the beach.
Sunk cost Cost that has akready been incurred and
that cannot be changed by any decision
made now or in the future
LO 1-6: Different cost classifications for different purposes

The traditional format income statement
Cost of goods sold = beginning merchandise inventory + purchases – ending

merchandise inventory
The contribution format income statement

Y= a+bX
CHAPTER 2: JOB-ORDER COSTING:
CALCULATING UNIT PRODUCT COSTS
Why companies usually Helps fulfill their planning, controlling and decision
assign costs to their making responsibilities
products and services? Helps determine the value of ending inventories and
cost of goods sold for external reporting purposes
Job order costing Used in situation where many different products,
each with individual and unique features, are
produced each period
Measuring direct materials
cost
A bill of materials A document that lists the quantity of each type of
direct material needed to complete a unit of product
Materials requisition form A document that specifies the type and quantity pf
materials to be drawn from the storeroom and
identifies the job that will be charged for the cost of
the materials
Job cost sheet Record materials, labor, and MOH costs charged to
that job

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CHAPTER I – MANAGERIAL ACCOUNTING AND COST CONCEPTS

Costs can be classified differently based on the needs of management. It includes

LO1-2: Classifications for Manufacturing companies

LO 1-3: Cost classifications for preparing financial statements

Period cost ● All costs that are not product

LO 1-2: Cost classifications for predicting cost behavior

Variable cost Varies in direct proportion to changes in

LO 1-5: Cost classifications for decision making

LO 1-6: Different cost classifications for different purposes

Cost of goods sold = beginning merchandise inventory + purchases – ending

The contribution format income statement

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