Managerial Accounting Concepts and Principles

Chapter 16 Managerial accounting concepts and principles
1) Direct costs are identified with and can be traced to a cost object.
Indirect costs cannot be identified with or traced to a cost object.
2) Costs by function:
A) Product costs consist of manufacturing costs: direct materials, direct labor and factory overhead.
B) Period costs consist of selling and administrative expenses.
3) A) Prime costs which consist of direct materials and direct labor costs.
B) Conversion costs which consist of direct labor and factory overhead costs.
4) Materials inventory – consist costs of direct and indirect materials which have not entered the manufacturing process.
Work in process inventory – consist direct materials, direct labor and manufacturing overhead that have entered the manufacturing process but are not yet completed.
Finished goods inventory – consist completed products that have not been sold.
5) Cost of goods manufactured
Direct materials: Raw material inventory beginning Add: Purchased raw materials Total raw material available Deduct raw material inventory ending Raw materials used in production Deduct indirect materials used in production
Direct labor
Manufacturing overhead applying to work in process
Total manufacturing cost
Add: beginning work in process inventory
Deduct ending work in process inventory
Cost of goods manufactured
6) Cost of goods sold
Finished goods inventory beginning
Add: cost of goods manufactured
Goods available for sale
Deduct finished goods inventory ending
Unjustified cost of goods sold
Add underapplied overhead (or deduct overapplied)
Adjusted cost of goods sold
7) Income statement
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses: Salary