Chapter 2 Differences between financial and managerial accounting Managerial accounting provides information to managers, the people inside the organization who direct and control its operations. Financial accounting provides information to stockholders, creditors, and others who are outside the organization. Managerial accounting = inside the organization Financial accounting = outside the organization
Exhibit 2-2 Comparison of Financial and Managerial Accounting
Cost terminology Conversion cost - The sum of direct labor cost and manufacturing overhead cost.
DM – Direct materials are materials that become an integral part and whose costs can be conveniently traced to the finished product. Direct Labor - Those labor costs that can be easily traced to individual units of product. Manufacturing overhead - Manufacturing costs that cannot be traced directly to specific units produced. Non-manufacturing costs: Period costs – All costs that are not product costs such as sales commissions and rental costs of administrative offices are period costs. Product costs – All costs involved in acquiring or making a product. Prime cost – The sum of direct materials cost and direct labor cost. Selling costs – Costs necessary to secure the order and deliver the product. Administrative costs – All executive, organizational, and clerical costs. Raw materials - Materials that become an integral part of the product and that can be conveniently traced directly to it. Different costs for different purposes Variable cost – A cost that varies, in total, in direct proportion to changes in the level of activity. Fixed costs – A cost that remains constant, in total, regardless of changes in the level of activity. Direct cost – A cost that can be easily and conveniently traced to a specified cost object. Indirect cost – A cost that cannot be easily and conveniently traced to a specified cost object. Example: Dozens of varieties of canned soups –...