ACC 2203 Study Sheet

CHAPTER 1
Managerial Accounting and Cost Concepts
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Costs are split into two groups:
Manufacturing Costs
Nonmanufacturing Costs
Manufacturing Costs:
Direct Materials
- Materials that go into the final product
Direct Labor -
Labor costs that can be traced into parts of the product
Manufacturing Overhead - all manufacturing costs except direct materials/labor
, such as
Indirect
Materials, Indirect Labor, Maintenance and Repairs on Production Equipment, property taxes, depreciation and insurance on manufacturing facilities
. (
Costs associated with selling/administrative expenses are not included!!!
)
Nonmanufacturing Costs:
These costs are divided into
Selling Costs
(cost incurred to secure customer orders etc), and
Administrative Costs
(executive compensation, general accounting etc)
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Costs can also be classified as:
Product Costs
Period Costs
Product Costs -
All costs involved in acquiring or making a product. Direct Materials, Direct Labor,
Manufacturing Overhead. These product costs are attached to each unit until the units are sold, at which point they become expenses , or cost of goods sold
.
Period Costs
- All costs that are not product costs.
All selling and admin. expenses are period costs.
(Sales commissions, advertising, executive salaries etc).
Period costs are not included in the cost of purchased or manufactured goods!!!
Prime Cost
= sum of direct materials + sum of direct labor
Conversion Cost = sum of direct materials + manufacturing overhead
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Cost Behavior:
Variable Costs are costs that vary in direct proportion to changes in the level of activity.
Direct materials, direct labor, and all variable elements of overhead/selling/admin expenses are