Professional Documents
Culture Documents
Classifications
Chapter Two
2-2
Learning Objective 1
Manufacturing Costs
Direct
Direct Direct
Direct Manufacturing
Manufacturing
Materials
Materials Labor
Labor Overhead
Overhead
The Product
2-4
Direct Materials
Example:
Example: A
A radio
radio installed
installed in
in an
an automobile
automobile
2-5
Direct Labor
Example:
Example: Wages
Wages paid
paid to
to automobile
automobile assembly
assembly workers
workers
2-6
Manufacturing Overhead
Examples:
Examples: Indirect
Indirect labor
labor and
and indirect
indirect materials
materials
Non-manufacturing Costs
Selling Administrative
Costs Costs
Learning Objective 2
Distinguish between
product costs and
period costs and give
examples of each.
2-9
Sale
Quick Check
Quick Check
Classifications of Costs
Prime Conversion
Cost Cost
2-13
Comparing Merchandising and Manufacturing
Activities
Merchandisers . . . Manufacturers . . .
Buy finished goods. Buy raw materials.
Sell finished goods. Produce and sell
finished goods.
MegaLoMart
2-14
Balance Sheet
Merchandiser Manufacturer
Learning Objective 3
Prepare an income
statement including
calculation of the cost
of goods sold.
2-16
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory $ 14,200
+ Purchases 234,150
Goods available
for sale $ 248,350
- Ending
merchandise
inventory (12,100)
= Cost of goods
sold $ 236,250
2-17
Withdrawals
Withdrawals
Beginning
Beginning Additions
Additions Ending
Ending
balance
balance
+ to
to inventory
inventory
= balance
balance
+ from
from
inventory
inventory
2-18
Quick Check
A. $1,000.
B. $ 800.
C. $1,200.
D. $ 200.
2-19
Quick Check
Learning Objective 4
Prepare a schedule of
cost of goods
manufactured.
2-21
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Conversion
Conversion
Beginning raw Direct materials
materials inventory + Direct labor
costs
costsarearecosts
costs
+ Raw materials + Mfg. overhead incurred
incurredto to
purchased = Total manufacturing convert
convert the
the
= Raw materials costs
available for use
direct
directmaterial
material
in production into
into aafinished
finished
– Ending raw materials product.
product.
inventory
= Raw materials used
in production
2-24
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Manufacturing
Overhead Cost of
Finished
Goods
Goods
Sold
Quick Check
A. $276,000
B. $272,000
C. $280,000
D. $ 2,000
2-29
Quick Check
A. $276,000
B. $272,000
C. $280,000
D. $ 2,000
2-30
Quick Check
A. $555,000
B. $835,000
C. $655,000
D. Cannot be determined.
2-31
Quick Check
A. $555,000
B. $835,000
C. $655,000
D. Cannot be determined.
2-32
Quick Check
A. $1,160,000
B. $ 910,000
C. $ 760,000
D. Cannot be determined.
2-33
Quick Check
A. $1,160,000
B. $ 910,000
C. $ 760,000
D. Cannot be determined.
2-34
Quick Check
A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000.
2-35
Quick Check
A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000. $130,000 + $760,000 = $890,000
$890,000 - $150,000 = $740,000
2-36
Learning Objective 5
Understand the
differences between
variable costs and fixed
costs.
2-37
How
How aa cost
cost will
will react
react to
to
changes
changes in in the
the level
level of
of
activity
activity within
within thethe relevant
relevant
range.
range.
Total
Total variable
variable costs
costs
change
change when
when activity
activity
changes.
changes.
Total
Total fixed
fixed costs
costs remain
remain
unchanged
unchanged when when activity
activity
changes.
changes.
2-38
Variable Cost
Minutes Talked
2-39
Telephone Charge
Per Minute
Minutes Talked
2-40
Fixed Cost
The average fixed cost per local call decreases as more local
calls are made.
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
2-43
Quick Check
Quick Check
Learning Objective 6
Understand the
differences between
direct and indirect
costs.
2-46
Learning Objective 7
•
Every decision involves a choice between at least two
alternatives.
Opportunity Cost
Sunk Costs
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
Quick Check
• Financial reporting
• Predicting cost behavior
• Assigning costs to cost objects
• Decision making
2-59
End of Chapter 2