Class 1
Internal Reporting
Only for people inside the firm, not shared with public or even shareholders All types of businesses, profit and nonprofit
Internal Reports are used to look ahead:
Planning
Establishing goals and objectives
Directing
Coordinating activities and motivating employees
Controlling
Keeping activities on track, are they being met, how to get back on track
Types of Costs
Product- all costs to purchase or manufacture Merchandiser: all costs for getting goods ready to sell Manufacturer: same as above + direct materials, direct labor, mnf. Overhead
Period costs- arise from the passage of time, expensed as incurred ex. Salaries outside of product manufacturing.
Manufacturing costs
Direct or raw materials, indirect materials: denim vs. thread in making jeans
Direct or touch labor: employees that sit and sew the pieces of fabric Indirect labor: those that clean, secure and supervise the mnf process
Manufacturing overhead
Any item that is necessary to produce that product including insurance property taxes, depreciation etc.
Definitions
Prime costs: direct materials and direct labor
Conversion costs: direct labor and manufacturing overhead, required to convert the raw materials into final product
Direct vs. indirect costs: Depends on point of view, what are you looking at. The former can be easily traced to a specific and indirect cannot.
Opportunity costs: cost of giving up alternatives, not measured by acct systems, may change a decision
Sunk costs: costs already incurred, cannot be changed by any decision
COST behavior, fixed vs. variable
“in the long term, all costs are variable”
VC: increase as number of units increases, based on level of activity
FC: remain same over range of activity, “relevant range” over time this changes, committed or discretionary, the latter wont effect the production capacity.
Step or “semi-variable” costs: change in response to